Estate Planning Isn't Reserved for the Rich
If something tragic happens to you, who will take care of your children?
If you are married and something happens to both of you, how will you know that your children are well provided for?
Christians know that our eternal life resides with our Father in heaven, but many of us do not want to think about the day that our time on earth is done.
Tragedies happen every day. Every hour. Every minute. It’s impossible for us to predict the future. But that doesn’t mean we can ignore the fact that death is one certainty of life.
People get estate documents to put plans in place for when they pass away or are no longer capable of making decisions themselves. Estate planning isn’t solely for the rich.
As parents, it’s our duty to protect our children and provide a warm, loving environment for them. I strongly encourage you to get a Last Will and Testament at the very minimum if you are pregnant or have any children. It’s a legal document that spells out who gets custody of your children if you (and your spouse, if married) pass away.
5 Reasons to Get Estate Documents Now
Why get your estate in order? Five reasons are offered below, adapted from Emily Kirk’s blog post:
1. Peace of Mind
One could argue that this is the most important aspect of estate planning. When you plan ahead, you provide family harmony. Relationships are far more valuable than money alone. Building wealth is inconsequential if family relationships are strained.
2. Provide for Your Family
Without a proper estate plan, your loved ones may be left in limbo. Families with an unexpected death often experience severe financial stress in the following weeks, months, and even years. Ensure that your family has enough money to cover bills and other living expenses.
3. Expedite the Process
Absent an estate plan (and a revocable trust, specifically), the courts are forced to handle everything: property distribution, guardianship decisions, and business dissolution (if applicable). The probate process is lengthy and can get quite expensive.
Proper beneficiary designations on retirement accounts and a revocable, or living, trust may circumvent the probate process altogether. Your family will have immediate access to the money they need to pay monthly expenses, funeral costs, and outstanding medical bills.
4. Plan for Incapacity
Estate planning is not just about death. If you suddenly become incapacitated through an accident or severe medical issue such as a stroke or heart attack, who will take care of paying your bills or managing your healthcare? A power of attorney designation for both financial and healthcare decisions can save your family a lot of anxiety.
5. Establish a Philanthropic Legacy
It is wonderful when you give to charitable causes during your lifetime. However, what if you prematurely die? None of your assets will go to charity if you do not have an estate plan. Be sure to consider life insurance proceeds when figuring how much to allocate to charitable endeavors within your estate plan.
Legacy
Creating or reviewing your estate plan offers peace of mind to you and your family members. And yet, there is another significant benefit. By living with intention and putting plans into place, you are opening yourself to transformation. Jesus doesn’t transform just one aspect of our lives when we enter into a relationship with Him. Rather, he transforms us completely.
If your time on earth is shorter than expected, you may want to supplement estate documents with a family vision statement or letter. This statement should outline your values and express love for your living and unborn children.
“Building and preserving family wealth isn’t an end in itself,” according to attorney Antoinette Bone. “Rather, it’s a tool for promoting shared family values—such as philanthropy, education, quality of life—or encouraging family members to lead responsible, productive, healthy lives. Drafting a family mission statement can be an effective way to define and communicate these values.”
When you pass away, your family will obviously be devastated. Wouldn’t it be wonderful to leave them a thoughtful message, sharing aspirations for children and even grandchildren for years to come?
Articulating a family mission statement shouldn’t be an afterthought. Take the requisite steps now to let your children know the mission while you’re alive. Love to Know provides a clear process and additional examples to guide development of your family mission statement.
Estate Planning Terms
Now, let’s turn to estate planning terminology for families.
Any examples below will be based on Missouri law. States vary on how they treat probate avoidance, spousal property rights, and estate and inheritance taxes.
1. Wills
If you die tomorrow without a will, a guardian will be appointed for your minor children and all assets without a specific beneficiary designation go through a very public process called probate. If you have a will, the probate process is still relevant. Your Last Will and Testament explains to the probate court exactly who will care for your children, who is in charge of implementing your wishes (also called the executor), and how your property will be distributed.
Beneficiary designations indicate how certain assets will be distributed, even if there is no Last Will and Testament.
For example, if I list my husband Bryan as 100% primary beneficiary on my life insurance policy, the life insurance proceeds will pass directly to him at my death. The contingent beneficiary designation is important if Bryan isn’t alive when I pass away. My kids could be listed as contingent beneficiaries, but that is not ideal since they are minors.
2. Trusts
Establishing a trust can be helpful for privacy and to direct the distribution of assets when you and/or your spouse are deceased. A revocable trust is often recommended by estate attorneys if you have any child under the age of 18 (aka minor), especially if you do not want your child having immediate access to millions in tax-free life insurance proceeds. Revocable means you can change or revoke the terms of the trust while you are still alive.
Listing a revocable trust as 100% contingent beneficiary of life insurance is advantageous because assets will be held in trust until the child meets certain trust criteria. More specifically, a revocable trust will hold assets in trust until your child reaches a particular age.
Some families opt for revocable trusts that offer greater asset protection and privacy. However, trusts are more expensive to create than basic wills. You have some control over debt settlement and asset division if using a will, but trusts have a better likelihood of helping you preserve financial wealth for multiple generations.
Irrevocable trusts are set in stone. It is very difficult to change them unless you have a trust protector. Families with significant taxable estates often use irrevocable trusts as a holding place for permanent life insurance policies so there are no income or estate tax implications when the insured dies. Establishing an irrevocable trust involves additional cost both at the beginning and during the term of trust. Crummey letters must be issued annually by the trustee of an irrevocable life insurance trust, adding even more complexity. Gift tax returns are also required when life insurance premiums are paid through the irrevocable life insurance trust, also known as ILIT.
3. Powers of Attorney
When you hire an estate attorney to prepare a will and/or trust, any reputable estate attorney will additionally advise you to have a Healthcare Directive (also called Living Will), Medical Power of Attorney (POA) and HIPAA Release, and Financial Power of Attorney. The Medical POA and Healthcare Directives are essential when you can no longer make medical decisions for yourself. Your spouse is typically listed as the Power of Attorney if you’re married. Most parents opt for an adult child, family friend, or other relative to serve as a backup Power of Attorney to make those very difficult medical decisions.
Financial Powers of Attorney ensure your bills are paid and other financial matters are addressed if you are incapacitated. Powers of Attorney are critical when you are still alive but unable to make medical or financial decisions due to physical or cognitive decline. If you pass away, the Power of Attorney is no longer relevant.
Instead, the Last Will and Testament (and trust, if you created one) will define who handles your estate and financial matters. In the case of a will, this person is known as Executor. A Trustee will handle financial matters following your death according to the terms of the trust. When selecting an executor and possibly Trustee, consider the person’s level of conscientiousness.
4. Guardians
Ensuring adequate care for minor children if you pass away prematurely is critical. Your Last Will and Testament will appoint a guardian who cares for the children in your absence. If you’re married, this duty will naturally fall to your spouse. But for those who are not married or want to consider backup guardians, family members and close friends are usually good choices.
Think about the history you have with a particular family member. You may want to choose your father or mother as guardian if they are heavily involved in your child’s life. But you must be cognizant of the lifestyle your parent leads. Is your parent physically and emotionally able to take care of your children in their sixties, seventies or eighties? Will acting as a guardian change their pace of life in a positive or negative way?
Perhaps an adult sibling would be a better fit. My husband Bryan and I signed our estate documents a few days before our oldest son’s birth. We ultimately choose Bryan’s older sister as guardian. She already had one son, and we knew she and her husband could provide a safe, loving environment for our son. My only sister wasn’t married and had no children when we signed the estate documents. Additionally, she lives out of town. We didn’t select our parents as guardians for two reasons:
It would be hard to choose between the two sets of grandparents without hurting someone’s feelings.
We knew both sets of grandparents would want to retire within 10-15 years of our son’s birth and thought taking care of a grandchild may be more of a burden rather than a blessing during retirement.
Ultimately, the decision to choose a guardian for your child(ren) is yours. Hopefully, I offered some perspective on guardian selection that an attorney may not review with you.
5. Trustees
If you move forward with a Revocable Trust, the Trustee must follow the terms of the trust to ensure any life insurance proceeds or other financial assets are used and distributed equitably. A Trustee essentially controls the money.
Your minor children will live with the guardian and follow the guardian’s house rules. If you insist on sending kids to private elementary or high school, money will come out of the trust—and the Trustee is accountable for financial matters once you are deceased.
It’s a Long-Term Game
Remember, estate planning documents are focused on long-term, rather than short-term, needs. Selecting an initial guardian and trustee (especially if you are an unmarried parent) can be challenging. But it is also essential.
Did I motivate you to contact an attorney if you do not already have estate planning documents?
If you already have estate planning documents, it is good to revisit them every 5 to 10 years or if you permanently relocate to a new state. Circumstances and laws change over time. An estate planning attorney may recommend a minor change, also known as amendment, or may restart the estate planning process if enough items have changed.
At WorthyNest®, we guide parents through important financial decisions using a values-based approach. Contact us to explore a one-on-one relationship.