An estate plan is a collection of legally binding documents that ensure you control what happens to you, your assets, and any dependents you may have, when you become incapacitated or die. The plan may include a will, power of attorney forms, trusts, and more.
“Having a dictionary plan is like carrying an umbrella for the inevitable rainy day,” said Mary Elizabeth Anderson, a partner at the Kentucky law firm Wyatt, Tarrant & Combs LLP.
The most commonly known will is called a last will and testament, which is a written statement of who should receive a deceased person’s property, Anderson said. Who will take care of dependents or pets can also be included.
Assets can include items such as real estate, cars, and family heirlooms.
In the US, the requirements for a will to be considered valid vary from state to state, and you should consult an attorney to make sure yours is legally binding.
Without a will, state laws govern who receives your assets and a person’s intentions may not be carried out, Anderson added. This could lead to a lengthy process in court that causes headaches for loved ones.
Paige Hardin-O’Brien, 32, created an estate plan three years ago, making sure to include some precious vintage furniture in her will. He is an embryologist at the Kentucky Fertility Institute in Louisville and one of Anderson’s clients.
Hardin-O’Brien also made sure to include her medical wishes for end-of-life care, information typically included in a living will. Unlike a last will and testament, this legal document outlines your plans for when you are still alive. It provides instructions on how to get medical treatment if you are unable to speak for yourself, in the event of a life-threatening emergency or other serious medical condition.
As a registered organ donor, he also included a medical clause stating that he wishes to donate his organs when he dies.
Power of attorney forms
While a living will sets out your medical preferences, health care power of attorney forms allow someone else to make decisions on your behalf if you’re unable to do so, said Ray Prather, a partner at the Chicago law firm Prather Ebner LLP. .
Hardin-O’Brien appointed his mother to decide whether or when to remove life support in the event of such a medical crisis.
“I’m married, but I didn’t give (my husband) permission to say yes or no because he would literally keep me on life support forever,” she said.
Financial power of attorney forms, on the other hand, appoint someone to oversee your property, access your bank accounts and manage your finances if you can’t yourself, Prather said.
Trusts are another important part of an estate plan. It’s an agreement to hold assets for the benefit of another person, Anderson said.
They can be particularly useful for adults who wish to pass on assets to under 18s.
Victoria Fuller, 32, created a trust after she found out she was pregnant to ensure her assets were properly allocated in the event she and her husband died while their children were minors. He is a partner at Wyatt, Tarrant & Combs LLP and is also a client of Anderson.
Without the trust, his children would inherit all the money at once, Fuller said.
Minors generally cannot own assets such as real estate, so the relevant property must be held by an adult or a third-party entity until it is legally inherited, Anderson said.
Fuller’s trust would give money to her children in smaller payments to ensure it wouldn’t run out before they were adults. He explained that when his children turn 18, they would have more access to money.
Other parents prefer to wait until their child is older, say in their 25s and 30s, to access their assets, Anderson said.
There are also non-trust options for adults to manage their assets in relation to their minor children. Anderson advised parents or guardians to speak with an attorney to determine the best option for you.
With all this legal jargon, it can be overwhelming to know exactly when and how to start the process.
Life events, such as turning 18 and going to college, getting married, changing careers or moving states, often affect estate planning, Anderson said. Pregnancy is also a popular time to start the process, as in Fuller’s case.
Estate planning can be complex, so it’s good to seek the help of trusted experts who can navigate technical areas that can dramatically change the plan’s outcome, Anderson said.
Prather advised anyone creating an estate plan to work with a reputable attorney to ensure their documents are legally correct.
In addition to updating the plan after a major life change, she suggested that everyone meet with a lawyer every three to four years, regardless of their situation, to review their plan.
“Just because nothing has changed in your life in those three or five years doesn’t mean the law hasn’t changed,” Prather said.
The price of doing an estate plan varies greatly depending on the complexity of the plan, how much the attorney charges and what city they’re in, he said.
Prather’s firm charges by the hour, and its typical estate plan is between $2,000 and $3,000. However, it is located in Chicago, which he noted can make the process more expensive than in other smaller cities.
While the price may be high, it’s a good investment because it ensures that everything you’ve worked so hard for in life is properly taken care of when you’re gone, Hardin-O’Brien said.
“You go to a job to buy all these things or put money into a house and then you die, and it’s all gone,” he said.
Estate planning can be fast
Hardin-O’Brien’s plan took only a couple of weeks to draft, and the process was very simple, she said.
It can be intimidating to get into planning because you think you need an already formulated plan, but the attorney works with you every step of the way, Fuller said.
Knowing that all is well for her children, Fuller’s estate plan gives her peace of mind.
“I want to make sure they’re in good hands and that they’re going to be well looked after and protected after I’m gone,” he said.