We hear over and over about the importance of estate planning. Examples of poor estate planning abound. Tales of celebrities who died without a will populate our media. Yet almost two-thirds of all Americans lack a valid estate plan. The majority of people in this country die without a will or trust.
So why do so many people ignore estate planning?
Some think they’re too young to need legal documents outlining what should happen with their estate after they die. Others believe only wealthy people need a will or trust. Some have a will, executed years ago, but they haven’t updated it to account for divorces, births, adoptions, marriages, or other life events in the years since. And still others are simply procrastinators who “haven’t gotten around to it yet.”
Clearly, there are many important reasons to have a will or trust, regardless of your net worth or age. And that means these excuses are simply that: excuses. Read on to learn the truth about why you need an estate plan. (And if you’re a fundraiser reading this, be sure to share it with your supporters and check out our estate planning brochure!)
Breaking Down The Importance of Estate Planning
Let’s start by answering some questions.
What Is Estate Planning?
Estate planning is an umbrella term for the process of creating a plan to pass on assets and personal possessions after your death. An estate plan also allows you to name guardians for your minor children and choose caregivers for your pets. It lets you name healthcare and financial powers of attorney, used in the event that a temporary or permanent illness prevents you from signing your own necessary documents. And an estate plan can even set aside gifts for your favorite nonprofits.
Why Is Estate Planning Important?
The importance of estate planning revolves around something we all desire: control. If you die intestate (without a will or trust), the state courts take over. That means your state’s inheritance statutes will decide who gets what.
It won’t matter that you pledged your dad’s classic car to your brother. It won’t make a difference that you promised a percentage of your brokerage account to your favorite nonprofit. And the courts won’t care if you wanted your vacation home to go to your second wife. If it’s not recorded in a valid will, you lose control, and the state will make these decisions for you.
An estate plan is also about taking care of your loved ones. A well-thought-out estate plan can help reduce your family’s potential (income, gift and estate) tax burden. It can also save time, money, and additional heartache. For instance, if you die intestate (without a plan), your loved ones will likely face a prolonged, painful, and expensive probate process as the courts sort through your affairs.
What Documents Should My Estate Plan Include?
That depends on your particular situation. But in general, an estate plan should include:
Last Will and Testament
This is a legal document that allows you to detail how you want all of your assets and possessions distributed. It also allows you to name a guardian for your dependents/children, and a caretaker for your pets. When most people think about the importance of an estate plan, a will or trust is the first thing that comes to mind.
Trust
A trust can allow your assets to be passed on privately, without the need for probate court. There are many different types of trusts. In general, they detail a legal relationship in which a “trustor” (you) gives the “trustee” (whomever you choose to manage the trust) the right to hold property or assets for a “beneficiary” (the person who eventually receives the property held in trust). Some estate plans may include either a trust or a will; others include both components.
Living Will
A living will outlines your wishes for end-of-life treatment. It details which treatments are acceptable, and which are not. For instance, whether doctors should attempt to resuscitate you if your heart stops; whether you should be placed on life support, or fed via tube; what types of comfort care are acceptable (such as pain management); and more. It can even be used to facilitate organ donations.
Medical Power of Attorney/Health Care Proxy
A medical power of attorney (AKA health care proxy) allows you to choose someone to make important decisions about your medical care. If you become incapacitated, the medical power of attorney can accept or refuse treatments on your behalf.
Financial POA
A financial power of attorney allows you to choose someone to manage your finances if you become incapacitated.
Life Insurance Policies
Life insurance can help your loved ones replace your lost income. It can be used to cover bills; pay for funeral expenses; or even pay for other end-of-life expenses. It can even be used to leave a gift to your favorite nonprofit. Life insurance is generally distributed via a beneficiary designation, which takes precedence over a will. This should be coordinated with your estate plan.
Beneficiary Designation Forms
As stated above, beneficiary designations take precedence over a will or trust. Life insurance policies; retirement plans such as an IRA or 401(k); bank accounts and brokerage accounts all allow you to name a beneficiary and a contingent (backup) beneficiary. You should include all of these in your estate plan to specify who gets what.
Succession Plan for Business
If you are an executive of or play a critical role in a company, or have ownership of or significant interests in a business, you need a succession plan. A succession plan sets the stage for future staffing needs and helps ensure the people with the proper skills and potential will take the helm.
An Estate Executor
An executor handles the distribution of your estate. They pay any final bills, distribute assets as indicated by your will, represent your estate in probate court, and notify banks, creditors, and government agencies of your death. You can choose a trusted friend or loved one to be your estate executor, or assign this task to a lawyer or financial institution.
Charitable Planning
Do you want to create a legacy and help to support a charity (or charities) with a gift? Include one in your will with a a gift called a bequest. It is the simplest (and most common) planned gift. Include specifics such as the charity’s registration number, address, amount of the gift, any conditions surrounding the gift, and, if applicable, the name and contact information for the fundraiser with whom you worked. This also applies to any charities named in your beneficiary designation forms. Be sure to also notify the charity of your intended gift.
Other Reasons Estate Planning Is Important
It’s About Caring for Your Children
If you have minor or disabled children, the importance of an estate plan with a valid will or trust should be clear. It allows you to decide who will care for them if something happens to you. It allows you to set aside money or instructions for their care. And it will help you keep those assets under management until your children reach an age you choose.
But if you don’t have a will, the probate court will decide who should be your child’s guardians. They won’t take you wishes into account. Your child’s inheritance will be held in a custodial account until they reach age 18, at best. This is not an outcome anyone would choose, but it is what the state intestacy laws will impose if you do not create a will.
An Estate Plan Is a Source of Comfort.
Creating a valid will means you’ll know your final wishes will be respected and the people and causes you care about will be looked after. But dying without an estate plan means you’ll be heaping more trauma on top of your already grieving loved ones. Is that something you really want to do? Having an estate plan in place will provide you with a source of comfort.
It Allows You to Provide Instructions for Your Funeral
Writing a will allows you to have a say in how you leave this earth. You can specify burial instructions, type of service, whether you want a viewing or not … even the music played at your service. Of course, any burial service will likely occur before your will is actually filed with the probate court, so you will want to be certain your executor has immediate access to the will in order to be able to make those arrangements in accordance with your wishes.
It Is The Best Way to Take Care of a Loved One
Creating an estate plan and writing a will allows you to make provisions to care for your loved ones. That could mean protecting certain assets for your spouse, or providing support for the special needs of children or grandchildren, especially if they face costly illnesses or disabilities.
Apart from setting up a custodial account for a minor child, state intestacy laws do not provide any mechanisms for protecting or managing distributions to heirs. It’s just one more reason why you need a will or trust in your estate plan. Otherwise, everything goes outright, and in shares determined by statute, not by the individual needs of your heirs.
A Detailed Estate Plan Settles Family Disputes and Eases Grief
Aunt Peggy can’t argue with Cousin Fred over who gets grandma’s cherished chinaware set and basket collection if you designate who gets what in a legal will or trust. Your children can’t squabble over what Mom or Dad would have really wanted. A will or trust lays everything out, exactly as you wish.
You Get to Choose an Executor
If you don’t have a will, the probate court will decide who is in charge of handling your final affairs. It won’t matter if you planned to entrust that role to your favorite brother or a neutral, trusted family friend. Not recorded in a will? All bets are off.
Conclusion
Creating an estate plan is the best way to protect your loved ones and shape your legacy. We cannot overstate the importance of estate planning. No matter how large or how small your net worth, you should make an estate plan and include a will or trust to distribute your assets after you pass. An estate plan will provide you with peace of mind, help make the most of your hard-earned assets, and protect your family
An estate plan also allows you to gift assets to your favorite nonprofit through a planned gift. Planned giving makes the world a better place. And creating an estate plan will is the first step toward protecting your family, preserving your legacy … and making that planned gift.
Estate Planning FAQ
There is no law requiring you to create a will. However, that doesn’t mean you don’t need a will. You control the distribution of your assets after your death when you create a will. That includes who gets what—and who doesn’t. If you don’t have a will, your state’s probate court decides where everything goes. The court won’t care if you wanted your goddaughter to get every penny, or if you didn’t want your brother to inherit a cent. And if you don’t have a valid will, your heirs may inherit little more than unnecessary taxes and the expense of sorting your affairs.
A will is about much more than money. A will allows you to take final control of other aspects of your life as well. You can specify a guardian or caretaker for children and pets. You can state your wishes for your funeral service. And a will allows you to disburse items that may not have much monetary value, but have personal significance. There’s no law requiring you to write a will, but it’s a very good idea to create one, no matter how small or large your net worth.
When you die without making a will, you die “intestate.” The specific probate/intestacy laws of your state then determine how your assets are distributed. These laws differ between states, but the general aim is to establish next of kin and other descendants. The laws then determine who receives a portion of your estate. You can sum up the importance of an estate plan and a valid will or trust in three simple words: You retain control.
Yes! And it’s very easy to do so. There are many different ways to leave money to charity through your estate. This type of donation is called planned giving, or legacy giving. The simplest gift, a bequest, is made through a will. However, other planned gift options can do even more for your favorite charity. Most will provide you with tax benefits, and some will even pay you income for life!
Those with simple estates can draft their own wills. More complex situations require hiring an estate attorney. There are a number of free online will planners that allow you to draft a will that you can print out and legalize according to your state’s laws. However, if you have a more involved estate—for instance, one that involves wealth, business interests, complicated real estate, or other considerations, you should definitely hire a qualified estate planning attorney to help.
Creating a will requires “testamentary capacity” — the ability to understand, create or alter a will. Some people suffering from Alzheimer’s or dementia may be capable of creating a will. Others may not. The best thing to do in this case, or in any case where the person’s mental capacity might be an issue, would be to hire a lawyer to help.
Although rare, there are some cases in which state laws are so different that such a move could make a will invalid. Differences in how marital property is viewed cause the most common problems. Your best bet is to review your will with an attorney from your new state.
That depends on your situation. The entire probate process can take well over a year to complete. A simple will can pass through probate quickly and with minimal expense. Complicated estates, however, can take much longer. This means a home or other properties associated with the estate may remain vacant and any valuables inside at risk. Plus, the longer probate lasts, the more expensive it becomes.
Another consideration to take is that the probate process is public: Anyone can see what you’ve included in your will. To avoid probate, you would need to establish a trust. A trust is a legal document that creates a way to hold and manage assets on behalf of the beneficiary(ies). Usually a trust can be managed more quickly than a will. It keeps your information private, and can also increase your financial stability. It can even provide tax benefits. The ability to avoid or minimize probate is a prime example of the importance of an estate plan.
