Here’s the story of Bob Smith. A successful engineer, by the time he retired at age 62, Bob’s worked for four different engineering firms, lived in three different homes (the last home being paid off before he retired) and built a comfortable nest egg comprised of stocks, IRAs, and annuities. Bob married his college sweetheart, Molly, and they have three children. Counting his pension and Social Security, and Molly’s retirement (she was an elementary school teacher), the Smiths can live comfortably and financially secure.
For the most part, the Smiths have been in good health. Fast-forward 10 years:
One snowy February day, while shoveling off the sidewalk, Bob slips and breaks a hip. He’s going to need surgery and stay at a rehab facility. It will be well into spring before Bob returns home.
Fortunately for the Smiths, they had the foresight to do some estate planning: they sat down with an attorney and had the proper documents created several years ago in case the inevitable occurred.
Even though the Smiths are fictitious, they are better off than most Americans. Here are some interesting statistics to ponder:
- 23-percent of people over the age of 55 have an estate plan
- 55-percent of Americans don’t have a will
- 50-percent of married Americans with children have no will
- 84-percent of single Americans have no will
- 48-percent of senior citizens have no financial Power of Attorney (POA)
Do those figures surprise you? They should. Where do you fall in those numbers, in the majority or minority? It is definitely something to think about.
And it leads to the next obvious question: Who needs an estate plan? Everyone does. Whether you’re Malcolm Forbes or just plain Joe Schmo working to get by, you should consider creating an estate plan.
Estate planning is the process of preparing for the future, both during your lifetime and beyond. By doing so now, you take control of your future, ensuring that your interests are protected, your financial and health care wishes are carried out, and your loved ones relieved from the uncertainty and anxiety of making tough and personal decisions in your absence.
Where do you start? It starts with a meeting with an attorney experienced with creating estate plans, and certified estate and financial planners who deal with this matter on a regular basis. The professionals know the ins and outs of estate planning, what rules and regulations are current, what’s changing, etc… They will create an estate plan that’s best for you, based upon your specific circumstances.
From a legal standpoint, there are three important tools that are a must in every estate plan:
- A medical and financial Power of Attorney (POA)
- A will
- A living will
You start with the POA, which includes financial and health care provisions. This document gives a trusted person the authority to handle your finances and make medical decisions for you if you become incapacitated and unable to handle your own affairs. Using the fictitious Smith family as an example, Molly is Bob’s primary POA, and vice versa, and one of the children serves as secondary POA if both parents are incapacitated.
Next is the will. In a will, you state who you want to inherit your property. It also names a guardian to care for your minor children should something happen to you and the other parent. A living will also is a legal document but it specifies what actions should be taken for health issues if you can no longer make decisions for yourself because of illness or incapacity.
After those three components are in place, you might want to consider adding other features or tools. Have you thought about a trust? If you place property in a living trust, your survivors won’t have to go through probate court, which is a time-consuming and expensive process. No one likes to talk about funerals, but you can set money aside via a prepaid funeral trust so your family won’t be burdened into finding ways to pay for your funeral and related expenses when the time comes.
If you are hesitant to create an estate plan, you are not alone. While most people recognize that estate planning is important, it is often put off for the future because it seems overwhelming and the benefits seem too far removed. However, it is essential to start planning early. The benefits of having estate planning in place far outweigh the cost or inconvenience of creating one. You do not want to be forced into the process by tragedy or crisis and you do not want to be left without proper planning when it becomes necessary.
As with any planning tool, your estate plan can only be truly effective if it is already in place when it is needed. Once estate planning becomes relevant or necessary, it is often too late to efficiently and successfully carry out your goals. Proper planning is essential to avoid unnecessary uncertainty, anxiety and expense, should such a tragedy occur.
Now what happens if you fail to plan ahead? Your case goes to court. A judge will appoint someone to handle your assets and personal care. And your assets will be distributed to your heirs according to a set of rules known as intestate succession. Contrary to popular belief, everything does not automatically go to the state if you die without a will. Your relatives, no matter how remote, and, in some cases, the relatives of your spouse, will have priority in inheritance ahead of the state. An estate plan gives you much greater control over who will inherit your assets after your death.
Do you really want that to happen?