Your Financial Future: Estate Planning
Submitted by Alexander Consulting Group, LLC on December 30th, 2021For the past several months, I have been blogging about Financial Wellness and the six verticals I believe are integral to planning your financial future and reaching financial wellness:
2. Estate Planning
5. Cash Flow and Budget
6. Assistance to Loved Ones
So far, I have covered investment, retirement, insurance, and cash flow and budget planning in previous blogs. This month I am going to focus on some basic considerations for Estate Planning.
Wills
Planning for our deaths may seem like a morbid topic, but the reality is that no one lives forever. Most people do not know when their life will come to an end and having a will ensures that how you would like your estate to be handled after you are gone is clearly communicated.
In the event that you die without a will, it can be a very complicated and expensive probate process. This potentially creates unnecessary burdens for your loved ones who are already going through a difficult time with your loss.
You should seek legal guidance to help create a will, but some basic areas to cover are personal information, assets and beneficiaries, assigning an executor, assigning guardians where necessary, and notarized signatures.
Wills are comprehensive and should be updated periodically like all other important documentation.
Living Will
A living will is another important document that everyone should consider having prepared so that your loved ones and medical professionals know your wishes in the event of a medical situation where you are unable to communicate decisions on your own.
Having a medical directive when you have lost the ability to make medical decisions spells out what type of treatments you would like to have, pain management, organ donation, and what type of medical treatments you do not want.
It is a good idea to have a living will for ourselves and also to be sure that there is a directive in place for aging parents prior to the effects of dementia or other common health situations impacting one’s ability to make medical decisions.
A living will should be periodically updated as an individual’s viewpoints may change as they age and medical treatments evolve.
Healthcare Proxy
A healthcare proxy is a medical power of attorney designating an individual who is given the authority to make medical decisions on your behalf when you are unable to do so. It is similar to a living will in that they are both ways to make sure your wishes are met when you cannot do so yourself. However, a healthcare proxy allows for immediate decisions and can act in your best interest for situations that may not be covered in a living will or in the absence of a living will.
As with all important documentation, it is best to seek legal guidance when designating a healthcare proxy and periodically review for any changes that may need to be made.
Trusts
When estate planning, you may want to get some legal and financial guidance on establishing a trust. A trust is sometimes used to minimize estate taxes and may offer some other financial benefits.
A trust is a legal arrangement allowing another party to hold assets on behalf of a beneficiary. The way a trust differs from a will is that a trustee takes on the responsibility as soon as the agreement is made, while a will does not go into effect until your death.
A professional can help you determine if a trust is needed as you are estate planning.
Irrevocable Life Insurance Trusts
An irrevocable life insurance trust is created to own and control a life insurance policy while the insured party is still alive and to manage the proceeds after their death. Any gifts or transfers to beneficiaries are permanent and the trustee has been given control to distribute by the grantor.
Working with a professional for to determine the legal and financial implications for irrevocable life insurance trusts based on your unique needs is recommended.
Estate Taxes
In the simplest terms, estate taxes are the taxes due on the net value of an individual’s estate upon their death before any distribution to their heirs takes place.
A finance professional can help determine the best ways to minimize estate taxes in order to ensure that your heirs receive the maximum benefit from your estate.
Guardians for Minor Children
No one wants to think about dying when their children are still minors, but life is full of uncertainties. It is important to think about who you would want to raise your children in the event that both parents pass away before they are adults.
Although the likelihood is slim, the impact of not identifying a legal guardian has major consequences the children involved. If you have not identified a legal guardian for your child, a judge will make the determination without the nuanced information to make the decision that you would have made.
Who you choose as a guardian is up to you and your child’s other parent. Some factors to consider would be the person’s parenting style, values, religious beliefs, how they parent their own children, and their location. Choosing someone that your child is already comfortable with and has the ability to care for another child would be ideal.
Many parents choose to set up an inheritance for their children and could name someone other than the guardian to manage finances.
Charity Beneficiaries
Many individuals choose to give all or a portion of their estate to charity in the event of their death. Perhaps they do not have any dependents or they would just like their favorite charity to receive a portion of their estate along with any dependents.
Any individual or charity can be named a beneficiary of your life insurance policy or any retirement account in full or in part.
If you’d like to consult with an individual financial planner, please contact me. Alexander Consulting’s philosophy is to encourage people to plan for lifelong security: financial, health, and social. We take a highly individualized and zealously researched approach to financial planning so that our clients are fully prepared for all of life’s challenges.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal or tax advice. Please consult your legal or tax advisor regarding your specific situation.