Prince’s recent death shook many people. Soon after, we were surprised again by the revelation that there was no will to distribute the artists’ vast amount of wealth and assets.
While you may not be as wealthy as Prince, you probably still have a need for estate planning.
Who needs estate planning?
- Do you own anything? If so, you need some estate planning.
- Do you have children or other dependents? If so, you need estate planning.
“Any time that you own assets or have dependents, estate planning becomes important,” says attorney Michael Burwell of the Michigan law firm Bowen, Radabaugh & Milton, P.C. “If you have a family, estate planning is necessary regardless of the amount of assets you have accumulated.”
At this point, you may be thinking, “I don’t plan to die soon, I don’t have many assets, and this estate planning thing just sounds complicated! I think I’ll just flip on over to see what’s going on in my social media pages.” Before you do that, give us a chance to break this down for you.
Here are some simple first steps you should take.
The structure of some assets makes disposition following your death automatic, without needing a will.
- For example, a couple may own a house together. By law, if one dies, title passes to the survivor automatically.
- Similarly, you may have joint credit union or bank accounts. Most credit unions also give you the option to designate beneficiaries for your credit union accounts to receive those assets when you are deceased.
- If you have an IRA or 401(k) account, you can designate primary and secondary beneficiaries. The same applies to most brokerage accounts and life insurance. These “payable on death” options transfer ownership to your designated primary beneficiaries by contract. If they are no longer living, ownership transfers to secondary beneficiaries.
- Think through these designations and review them periodically. If you once identified a parent as a primary beneficiary, does that still apply once you get married or have children? You have the right to change your beneficiaries at any time.
Do you need a will?
Even if you take other steps, you still need a will.
You likely have other assets that do not have legally defined joint owners or beneficiaries. It is also possible that joint owners and beneficiaries don’t survive the time of your death. You may want to designate who will act as guardian for your children. These situations bring a will into play.
“Think of a will as instructions to the probate court about what to do with your assets and who you want to be the guardian of your child,” says Burwell. “If you don’t have a will, the law will determine how to distribute your assets.”
Should you establish a trust?
“A trust is the cornerstone of estate planning,” according to Burwell. “A trust provides much more flexibility than a will. Also, it’s not just for those with large estates.”
A trust may be an individual trust or joint, as is often used by married couples. There are many benefits of a trust. A trust may be “revocable,” meaning that you can modify it at any time. You can also add assets to the trust and make changes to the distribution instructions as needed.
Another benefit is that the trust helps you avoid having your assets managed by the probate court. The trust holds title over the assets. In the event of your death, everything in the trust avoids having to go through probate court for distribution.
Finally, when you have children, a trust allows you to provide guidance even though you are not around to give it. If there is no trust, assets are automatically distributed to children when they turn 18. In most cases, a parent would not do this if they were alive. The trust can specify funds are set aside for specific purposes like a child’s college education. Funds can be timed to be distributed in pieces as the inheritor reaches specific ages.
It’s not a matter of having a trust vs. a will.
“A will is needed even with a trust,” says Burwell. “It will enable you to at least select who will be empowered to distribute remaining assets and who should be the guardian of your children.”
Estate Planning also involves planning for potential incapacity.
A Durable Power of Attorney and a Patient Advocate Designation are two other components of basic Estate Planning.
- The Durable Power of Attorney will enable another person, often a spouse, to carry on your financial business should you become physically or mentally incapacitated.
- The Patient Advocate Designation gives another person the authority to act as your spokesperson for medical conditions and treatment should you be unable to do so.
Review, review, review
Once you have established your Estate Plan, do not put it aside and forget about it.
Review your plan annually to ensure that you make any needed updates or changes.
It can be uncomfortable to think about what will happen after you are no longer walking this earth. If you are looking out for your family, though, you will take the steps today to ensure they have clarity and security tomorrow.
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