Most people know they SHOULD have a Will. Some people (you know – the over achievers and those who are really on top of their game) actually have a Will. The rest of us intend to make one “some day.” But an Estate Plan? Other than celebrities and millionaires, who needs a Will and an Estate Plan? In a word: you.
What is the difference between a Will and an Estate Plan?
A Will is a legal document that directs how certain property will pass when you die. A Will is one piece of an overall estate plan.
An Estate Plan is a collection of legal documents that directs, not only how property will be distributed when you die, but in some cases how it is managed when you are alive, and what kind of healthcare choices you would like to have made for you if you are unable to make those choices for yourself.
Why you need a Will and an Estate Plan, even if you don’t have an “estate.”
An estate is the legal word given to all of your property and possessions. In other words: it is all of your “stuff.”
Everyone in this country has “stuff.” You may not have a lot of stuff, or your stuff might not be worth a lot of money, but unless you are homeless and just lost all of your possessions in some sort of natural disaster, you have stuff! And the more stuff you have, the more you need a Will and an estate plan.
You also need an estate plan because you have a body. If, heaven forbid, something should happen and you become physically unable to direct your healthcare decisions, you will have a much greater chance of having someone make decisions that are in line with what you would have wanted if you were able to make the decisions yourself, if you leave directions about what you want.
What documents are part of “an estate plan?”
A Will – This directs who gets certain types of your property when you die. It also indicates who you want as the legal guardian of your children.
A Living Will – This directs what kind of life-sustaining treatment you want, or don’t want, if you become incapacitated.
A Trust (maybe) – A trust is actually a legally-formed entity, much like a corporation. There are different types of trusts, and trusts can be incredibly complex, but the bottom line is that, putting your assets in a trust keeps them out of probate court and gives your trustee the authority to dispose of them in the way that you have directed in the trust.
A Power of Attorney – This document gives someone the power to manage your property while you are alive. For example, if you are in a coma, the person whom you have appointed in your power of attorney document will be able to handle your financial affairs until you are better.
A Power of Attorney for Healthcare or Healthcare Proxy – This document appoints someone to make healthcare decisions for you if you are unable to do so for yourself. It also tells someone what kinds of healthcare decisions you want made.
Life Insurance – Life insurance provides your designated beneficiary with money when you die. What you need to know here is that your life insurance proceeds will be paid to whomever is designated as your beneficiary under the policy. The proceeds of the policy are not controlled by your Will.
Retirement Accounts – Like life insurance policies, retirement accounts pass at death to whomever is the named beneficiary of the account. That means that they are not controlled by your Will.
Titled Property – Things like your house and your car have legal titles. Sometimes, how you hold title determines who gets the property when you die. For example, if you hold title to property with your spouse as a joint tenant with rights of survivorship, then when you die that property passes directly to your spouse, no Will required.
Can I make my own Estate Plan?
No. A good Estate Plan is a complicated and inter-related set of documents that works together so that, when something happens and you die, all of your property passes exactly how you want and to whom you want. A good Estate Plan minimizes the amount your estate will pay in taxes when you die, and ensures that you have provided for you loved ones in the best way possible. It is not something most non-lawyers can do on their own.
What do I do if I don’t have money for an Estate Plan?
As a lawyer myself, I could never in good conscience counsel someone to make their own Estate Plan. This area of the law is far too complicated for that.
If you truly don’t have money for an Estate Plan, you can have the basic documents drawn up and signed. That means a Will, a regular power of attorney form and a healthcare power of attorney form. While I would, of course, recommend that you have an attorney draw up these documents for you, you can get these forms online and draft them yourself. But, I do recommend that you get an attorney to at least review your documents and make sure they are properly written and executed.
What happens to my Estate Plan when I divorce?
The scary answer to this question is: almost nothing. While your divorce judgment may provide that your ex-spouse can not inherit from you under your Will, and can not inherit from you if you die without a Will, it does not change the various beneficiary designations in your insurance policies and retirement accounts. It does not automatically re-title your property. You have to do that yourself.
Even though the last thing you are probably thinking about when you get divorced is your estate plan, if you care at all about the money and property you have just been granted as part of your divorce, you need to pay attention to your estate plan as soon after your divorce as possible. That means you have to change the titles to your house and your car yourself. You have to change the beneficiary designation in your life insurance policy and your retirement accounts. Finally, you have to make a new Will and new powers of attorney.
Don’t leave the future to chance.
Making a Will and an Estate Plan is no one’s idea of a good time. (Unless, of course, you are a financial planner or an estate planning attorney, and then you get off on doing that kind of thing.) But having a Will and an Estate Plan that is current, accurate, and reflects your wishes insures that, when something does happen to you, your family will be taken care of and everything will go as you planned.