Recently Stephen Covey, author of such well known books as The 7 Habits of Highly Successful People and First Things First, passed away. One of the simple yet effective rules he emphasized was to categorize tasks into four quadrants labeled by importance and urgency. One of the most effective things a person can do is to work on the “Important but Not Urgent” tasks. One of these tasks that clients often feel is “Important but Not Urgent” is their estate planning.
In fact, estate planning is both important and urgent. Estate planning is simply the process of planning the transfer of all personal assets to your chosen beneficiaries. It is important to communicate how you would like your assets distributed upon your death, and to plan ahead regardless of the size of your estate. If you don’t make these decisions for yourself, then it is likely the decisions will be dictated by the intestate laws of your state.
A good first step is to make an itemized list of your assets and liabilities called a balance sheet. Note exactly how the assets are titled (cars, homes, other real estate, bank accounts, investment accounts, physically held stock certificates & savings bonds) and the specific account numbers. Next, reflect on who you want to receive these assets (spouse, children, parents, relatives, or charities). You will need to take into consideration not just their ages, but their maturity level when it comes to money. What could happen if your beneficiary inherits a large $250,000 or $500,000 life insurance at age 19? It may be wise to set up a trust to parcel out the funds over 1-15 years so they can learn how to handle significant wealth. Next you should review your current beneficiary designations on all IRA, 401(k), life insurance assets (primary and contingent beneficiaries).
Finally, make an appointment with a qualified estate planning attorney to create or update your needed documents. Estate planning typically involves creating a will, revocable living trust, powers of attorney and properly titling your assets and beneficiary forms (IRA’s, annuities, life insurance policies, 401(k)s, etc.).
At a minimum you should have a will to name your beneficiaries, a guardian for any minor children, and an executor for your estate, as well as direct how assets are to be distributed. A letter of instruction, while not binding, is often helpful in expressing your wishes such as funeral arrangement (burial or cremation) and names and contact data for your attorney, financial advisor and accountant. You should also create a durable power of attorney and a health care power of attorney, which is a legal copy of yourself and is empowered to make financial and legal decisions on your behalf. A health care power of attorney is empowered to make decisions regarding your life and health. It is often wise to include a living will (expresses your desire to receive or discontinue escalating levels of health care intervention), authorization to release health care information, and any Do Not Resuscitate orders (DNR).
Please take the time to review the current status of your estate plan, and make any needed changes. Your loved ones will appreciate your diligence, and it can greatly simplify an already difficult time in their lives.