Through my daily interactions with clients and prospects, I’ve noticed a significant issue: a lack of planning for end-of-life transfers between spouses and to children, extended family, and charitable causes. It's understandable—thinking about death, and navigating the complexities of wealth transfer, can be daunting. However, planning for death is one of the few certainties in life we can prepare for. The need for estate planning is underscored by some alarming statistics.
Caring.com’s 2024 Wills and Estate Planning Study:
- 32% of Americans have an estate plan in 2024, a 6% decline from 2023.
- Reasons why Americans do not have a will:
- 43% say it’s due to procrastination and 40% say they don’t have enough assets.
- What would motivate Americans to get a will:
- 13% say it is too expensive to write one, 23% say they won’t ever make one, and 43% say they will wait until there’s a health crisis.
- 56% of Americans believe that estate planning is important, but only 33% of adults in the US have documented their end-of-life plans.
- Probate expenses can cost up to 10% of an estate.
- Probating a will can take anywhere from a few months to several years.
- American retirees expect to transfer more than $36 trillion to their families, friends, nonprofits, and additional beneficiaries over the next 30 years.
- Only 46% of will executors were aware of a will.
- 18% of those 55 and older have the recommended essentials of a will, a healthcare directive and a durable power of attorney.
- 87% of Americans age 55 and over say it’s a parent’s responsibility to initiate a conversation with their children about their legacy.
- 43% of Americans age 55 and over are concerned that they lack an advocate to look out for their best interests as they age.
What should I do first if I do not have an estate plan?
Write a will. You can write one as soon as you finish reading this article. It doesn’t take a lawyer, and it doesn’t take a financial advisor. A will does not avoid probate, and the government will have to validate the will, but it expressly states who gets what property when one dies. There are some important aspects about a will that one should know.
Probate Process: Property specified in a will may or may not go through probate, depending on state laws, which can vary.
Executor Appointment: You must designate an executor in the will, who is responsible for overseeing the distribution of property. If you do not name an executor, the court will appoint one.
Guardian for Minor Children: You can name a guardian for minor children in your will. If no guardian is named, the court will decide who will take on this role during probate.
Requirements for a Valid Will: To create a will, you must be at least 18 years old and of a sound mind. The will should be typewritten, dated, and signed in front of two witnesses, who must also sign it. Witnesses cannot be beneficiaries of the will. Many states do not recognize handwritten wills as valid, and while notarizing is optional, it can be beneficial.
What else do I need besides a will?
A will is the most basic component of an estate plan, but additional documents can be created with the help of an attorney for more comprehensive control. These include a living trust, medical directive, and powers of attorney (both medical and financial). These documents provide greater authority over who manages and distributes your assets, and they outline how and when those assets are distributed. They also allow designated individuals to make financial or medical decisions on your behalf if you become incapacitated. A medical directive specifically communicates your wishes to healthcare providers, such as decisions about life support and organ donation in the event of your death.
The Benefits of a Living Trust
A living trust offers several advantages that a will does not. One key benefit is that it allows your estate to avoid probate, as assets can be transferred according to the trust’s instructions without court supervision. This also helps maintain privacy, as probate proceedings are public record. For instance, high-profile estates like Michael Jackson’s $500 million, Prince’s $300 million, Whitney Houston’s $20 million, as well as those of James Brown, Heath Ledger, and Robin Williams, became public due to probate. A trust allows your successor trustees to continue managing assets
smoothly and gives you control over asset distribution, such as distributing assets in stages or creating individual trusts for each child that provide income but restrict access to the principal.
The Benefits of a Medical Directive
A medical directive, also known as an advance healthcare directive, clearly outlines your preferences for resuscitation, organ donation, autopsy consent, and other important medical decisions. By doing so, it helps reduce conflict and stress for your family when they face difficult medical choices on your behalf if you haven’t communicated your wishes. It also appoints a healthcare proxy, designating someone to speak with doctors and make decisions for you. The directive may include details about pain management and treatments that align with your values. As a legally binding document, it ensures that both doctors and family members must respect and follow your instructions.
The Benefits of a Power of Attorney
A power of attorney can be established for either medical (healthcare proxy) or financial purposes. The financial power of attorney, much like a trustee of a trust, ensures the continuity of your financial affairs if you become incapacitated. These powers can be broad or limited and will remain in effect during incapacity. Having a power of attorney in place can help avoid the need for a conservatorship, where the court appoints someone to manage your affairs. You can also decide when the power of attorney becomes effective, such as through a “springing power of attorney,” which only activates under specific conditions. Additionally, the power of attorney can be revoked at any time, provided you are of sound mind.
Conclusion
A good financial advisor should review estate planning with clients annually, as circumstances often change. New assets are acquired and titled, and new family members may join the family through marriage or birth. As estates grow and more control and protections may be necessary, the planning process becomes more complex. However, estate planning can be simplified by breaking it into manageable steps. The first is creating a will. While a will does not avoid probate, it does give you more control over how your assets are distributed and who will care for your minor children. Without it, the courts will decide these matters for you.
In addition to a will, other key estate planning documents include a medical directive, trust, and power of attorney, each offering significant benefits as outlined earlier. A knowledgeable financial advisor can help you navigate these options to determine what is best for you and your estate and can work with your attorney to draft the documents.
From my experience, even with these important documents in place, mistakes can still happen. That is why I wrote the article “Common Beneficiary Mistakes” for my clients and subscribers in February, and why I work closely with my clients on estate planning every year. If you would like a comprehensive review of your estate plan, please reach out to me. Together, we can organize your affairs and plan for your future.
