The concept of estate planning can be confusing, perhaps even daunting for some. For others, it may be seen as a process just for the wealthy. This oft-misunderstood preparation of tasks to manage an individual’s financial situation is not just a local concern–it’s a national issue that continues to grow. According to the Center on Education Policy, a recent poll reveals that only 24% of Americans have a will, down significantly from 40% in 2016.
Several reasons may have triggered the decline, including families being caught off guard or feeling unprepared for an unexpected medical emergency or death. Also, many people procrastinate due to discomfort around planning for loss or carry a basic confusion around what to do to prepare for the future.
Attorney Ean Hamilton, of Hamilton Law, PLC, often finds that the details around estate planning are easily misunderstood. Many people do not realize the steps and documents required to be fully prepared.
“Many people have heard of wills and designating beneficiaries; some have heard the term ‘probate,’ but have little understanding of how probate court works, and which documents are required to help family members avoid going through the costly, time-consuming steps of probate after a death,” she said.
Few people understand probate administration, the court-managed process where the assets of a deceased person are distributed.
“Probate can be a long process, depending on the size and complexity of the estate, and can cost up to $5,000, plus court fees,” Hamilton said. Planning ahead and documenting in detail what you want done with your estate once you’re gone can help your family members avoid such troubles, she added.
Estate Planning Basics
There are core documents every person should know about to establish an estate plan:
- Will. A will directs how assets and personal items are distributed, if probate is required, and is a safety net for any assets not otherwise titled in a trust or passing by beneficiary designation. It is important to include names of guardians for minor children, and to update the document after major life events every few years. This may also include planning for pets and accounting for digital assets.
- Trust. A trust is a legal document that grants a trustee the right to manage assets for one or more beneficiaries. Establishing a trust can help people avoid probate, maintain privacy and provide for minors or dependents.
- Power of Attorney (POA). There are two types of POA documents–a Financial POA and Medical POA. The Financial POA outlines who will handle bills, investments and taxes if a person is incapacitated. A Medical POA authorizes who can make healthcare decisions on your behalf and can be set up for adults as young as 18. This process can also designate individuals authorized to access personal accounts (utilities, social media, etc.).
- Living Will. A living will outlines medical-treatment preferences if a person is unable to express those wishes themselves. It also may help a family avoid difficult decisions in a medical crisis.
- Beneficiary Designations. A beneficiary designations identify who will receive specific financial accounts or insurance benefits when the owner dies. When completed properly, these designations allow assets to pass directly to the named beneficiaries and avoid probate. This may also outline wishes around planned giving to a charity or organization.
Planned Giving
Planned giving, also known as legacy giving, is an important part of the estate-planning process. A planned gift is any donation or major gift given to a nonprofit during a donor’s lifetime or after they have passed.
Mary Muliett and her team at the Battle Creek Community Foundation (BCCF) work with donors on legacy planning as a way to support their community for future generations.
“Generous donors prioritize continuing to support their community long after they’ve passed, either by establishing a legacy fund or designating a donation to an existing fund to support causes that are dear to them,” she said.
BCCF provides flexibility to diverse groups of donors who seek planned-giving options. First-time donors may lean towards supporting specific causes, such as education or food scarcity, designating gifts towards an existing BCCF fund.
Others of a more advanced age might embrace the IRA Charitable Rollover program to avoid taxes on transfers from retirement funds to BCCF. Donors wishing to create a family legacy for generations to come can create a donor-advised fund.
It’s always wise to start estate planning conversations early, to avoid surprises when the time comes to read a will or pass the baton on a legacy fund.
“Establishing your wishes takes time and it’s specific to each client,” said Hamilton. It’s helpful to have an objective third party guide you on “choosing trustworthy executors and trustees, as well as discussing plans with family members to avoid concerns down the road.”
National Estate Planning Awareness month was adopted by the House of Representatives in 2008 to educate the public about the importance of creating and maintaining an estate plan. The third week in October is National Estate Planning Awareness Week, October 20-26 this year.