Is Your Estate Plan Up To Date? 5 Questions to Make Sure.
Is Your Estate Plan Up To Date? 5 Questions to Make Sure.
Your estate plan is a living, breathing entity. It’s vital to keep your documents up to date, so it tells a cohesive story and ensures your wealth transfers to the appropriate people efficiently.
If you have an estate plan you need to dust off, or if you’re just starting out, ask yourself these 5 questions.
1. Are Your Beneficiaries Names Listed Correctly?
Beneficiary designations are a critical element of your estate plan. While identifying these names may seem small, they kick off the wealth transfer process.
Who Are Beneficiaries
Your beneficiaries are the people or entities that receive assets from you. There’s a lot of flexibility in naming beneficiaries as you can select individual people, groups (like siblings), an organization (like a charity or business), or trust accounts.
Remember, minors typically can’t inherit property, so if you list a minor as a beneficiary, you’ll also need to consider appointing a trustee who can help with their inheritance until they reach the age of majority (18 or 21, depending on the state).
Important Notes Regarding Beneficiaries
- Uncle Sam Is First In Line. While your beneficiaries are entitled to what you designate, they can’t access those assets until your estate pays any owed taxes and/or settles debts.
- Why Naming Them Is Important - If you don’t select beneficiaries, you leave the asset division process to your state’s intestacy laws. When this occurs, the state makes decisions regarding beneficiaries and wealth transfer.
- Beneficiaries Could Be Subject To Change - To ensure your wealth goes to the proper people, update your plan after major life events like marriage, divorce, children, grandchildren, changing jobs, retirement, death in the family, intense falling out, etc. You can also name contingent beneficiaries who can take the place of a primary should something happen to them.
2. Do You Have A Financial Power of Attorney and Medical Directive?
Both the Financial Power of Attorney and Medical Directive are legal documents that enable someone to make decisions for you should you become incapacitated. It’s also important to know that both documents become void at death.
Financial Power of Attorney
A Financial Power of Attorney allows you to select someone you trust to make financial decisions on your behalf, like paying bills, filing taxes, managing property, and overall money management should you be unable to do so yourself.
Since they can make important financial decisions, you must appoint someone you know will fulfill your wishes to the best of their ability.
POA vs. Executor
A financial power of attorney is relieved of their duties when you pass away. Afterward, the tasks transfer to your executor, which you can name in your Will.
After your death, the executor becomes the go-to person for your estate. Their responsibilities include accounting for all your assets, transferring assets to your beneficiaries, and ensuring any debts and taxes are paid.
Similar to your Financial Power of Attorney, your executor is legally obligated to act according to your wishes. Typically, people choose a lawyer, accountant, or trusted family member for this role.
Where your Financial Power of Attorney dictates what happens to your money, a Medical Directive is a document that gives another person the legal authority to make medical decisions on your behalf if you become incapacitated.
A Medical Directive will document and understand your medical wishes so they can make well-informed decisions, like if you want the use of cardiopulmonary resuscitation (CPR), a ventilator, or artificial nutrition (tube feeding or artificial hydrations). They may also have the final say on other things, like organ donation, surgery authorization, etc.
3. Are You Making The Most Of Your Trust?
A trust is a fiduciary relationship where the grantor (you) gives another party (trustee) the right to manage property or assets for the benefit of a third party (your beneficiary).
Trusts provide legal protection for your assets and help protect your estate from taxes, probate, or creditors. They also enable you to leave assets to minor beneficiaries. Once you deem them capable of managing the assets, the trustee will grant them access to the trust.
Why are trusts beneficial for your estate? There are a few compelling reasons:
- Trusts bring structure and organization to the wealth transfer process.
- They enable you to set rules, restrictions, and guidelines for inheritances.
- You can use trusts to support minor children and family members with disabilities (like a special needs trust).
- Some trusts are tax-friendly (notably irrevocable trusts).
- Using a trust can help your estate avoid probate.
People commonly use trusts to keep their assets safe until they are ready to pass to their beneficiaries. Because even the family member with the best intentions could put your assets at risk if they have access at an inopportune time (young, divorce, etc.).
4. Have You Made A Plan For Personal Property?
The Last Will and Testament is likely the most commonly recognized piece of the estate planning pie. It’s also an excellent place to list where/to whom you want your personal property to go. So start thinking about who’s getting your rare coin collection, your books of unique stamps, the family jewels, etc.
Besides giving your grandson your vintage car or granddaughter your beautiful china set, your Will is also the place to name your executor, who handles your affairs once you pass. If you have minor children, you can also name their guardians (day-to-day care) and trustee (financial care).
5. Did You Account For Your Digital Assets?
We live in a digital world, and your digital assets are just as valuable as physical ones.
Do you know the feeling of forgetting your email password? You might try all the options and can’t even get the security questions right! So, imagine that feeling, but on another level, because you can’t ask the account owner for help.
Save your loved ones time and stress by giving them access to your email, social sites, website domains, online banking, etc. Or, if you don’t want them to have it now, write them all down and keep them in a safe place they can locate later.
Your executor will also need your login information, passwords, account numbers, etc., for your assets.
It’s truly never too early to start estate planning. Don’t let the sea of legal forms overwhelm you because we’re here to help you.
First Dakota Wealth & Trust is here to assist you with your estate plan! Please set up a time to meet with us today to get started.
First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity, and after death. We help clients develop a financial roadmap to help simplify their financial future.
Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, nor its employees provide tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.