How to Create an Estate Plan: The Best Way to Plan for the Worst
Sign up for CNN’s Stress, But Less newsletter. Our six-part mindfulness guide will inform and inspire you to reduce stress while learning to harness it.
No one wants to think about how their loved ones will fare when they die, but it’s important to plan effectively to ensure a smooth transition of your wealth and material possessions – even if you’re young or feeling that you don’t have much to leave behind.
An estate plan is a set of legally binding documents that ensures that you have control over what happens to you, your property and any dependents if you become disabled or die. The plan can include a will, power of attorney forms, trusts and more.
“Having an estate plan is like carrying the umbrella for the inevitable rainy day,” said Mary Elizabeth Anderson, partner at the law firm Wyatt, Tarrant & Combs LLP in Louisville, Kentucky.
The best-known will is called a last will, which is a written statement of who should get a deceased person’s property, Anderson said. This may also include who will take guardianship of dependents or pets.
Assets can include items as varied as real estate, cars, and heirlooms.
In the United States, the requirements for a will to be considered valid vary from state to state, and you should consult an attorney to make sure yours is legally binding.
Without a will, state laws govern who receives your assets and cannot carry out a person’s intentions, Anderson added. This could lead to a lengthy, headache-inducing process for loved ones in court.
Paige Hardin-O’Brien, 32, created an estate plan three years ago, making sure to include some treasured vintage furniture in her will. She is an embryologist at the Kentucky Fertility Institute in Louisville and one of Anderson’s clients.
Hardin-O’Brien also made sure to include her medical wishes for end-of-life care, information that is typically included in a living will. Contrary to a last will, this legal document describes the plans for your life. It gives instructions on how you want to be medically treated if you don’t have the ability to speak for yourself in life-threatening emergencies and other serious medical scenarios.
As a registered organ donor, she also included a medical clause stating that she wants her organs donated when she dies.
While a living will outlines your medical preferences, health care power of attorney forms authorize someone else to make decisions on your behalf if you are unable to do so. said Ray Prather, a partner at the Chicago law firm Prather Ebner LLP. .
Hardin-O’Brien designated her mother to decide whether or when to remove her from life support, should such a medical crisis arise.
“I’m married, but I didn’t give (my husband) permission to say yes or no because he would literally keep me on life support forever,” she said.
Financial power of attorney forms, on the other hand, designate someone to oversee your property, access your bank accounts and manage your finances if you are unable to, Prather said.
Trusts are another important part of an estate plan. It’s an agreement to hold assets for the benefit of another person, Anderson said.
They can be particularly useful for adults wishing to pass assets to children under 18.
Victoria Fuller, 32, set up a trust after finding out she was pregnant to ensure her assets would be properly distributed if she and her husband died while her children were minors. She is a partner at Wyatt, Tarrant & Combs LLP and is also a client of Anderson’s.
Without a trust, her children would likely inherit all the money at once, Fuller said.
However, minors generally cannot own assets such as real estate, so any relevant property must be owned by an adult or a third-party institution until they can legally inherit it, Anderson said.
Fuller’s trust would give money to his children in small payments as needed to ensure it would not run out before they became adults. When her children turn 18, they will have more access to money, she explained.
Other parents prefer to wait until their child is more mature — between 25 and 30, for example — to allow them access to their assets, Anderson said.
There are also options other than trusts for adults to manage their assets with respect to minor children. Anderson recommended that parents or guardians consult with an attorney to determine the best option for you.
With all this legal jargon, it can be difficult to know exactly when and how to start the process.
Life events — like turning 18 and going to college, getting married, changing careers or changing states — often trigger estate planning, Anderson said. Pregnancy is also a popular time to begin the process, as in Fuller’s case.
Estate planning can be complicated, so it’s okay to seek help from trusted experts who can navigate technical areas that could drastically alter plan outcomes, Anderson said.
Prather recommended that anyone creating an estate plan work with a reputable attorney to ensure their documents are legally correct.
In addition to updating his plan after a major life change, he suggested that everyone meet with their lawyer every three to five years, regardless of their situation, to review their plan.
“Just because nothing has changed in your life in those three to five years doesn’t mean the law hasn’t changed,” Prather said.
The price of writing an estate plan varies widely depending on the complexity of the plan, the amount the lawyer charges and the city in which he is located, he said.
Prather’s firm charges by the hour and her typical estate plan costs between $2,000 and $3,000. However, he is in Chicago, which could make the process more expensive than in other smaller cities, he noted.
Although the price may be high, it’s a good investment because it ensures that everything you’ve worked so hard for in life is properly taken care of when you’re gone, Hardin-O’Brien said.
“You go to work to buy all these things or to put money in a house, and then you die, and everything goes away,” she said.
Hardin-O’Brien’s plan took just a few weeks to draft and the process was very simple, she said.
It can be daunting to get into planning because you think you already need a formulated plan, but the attorney works with you every step of the way, Fuller said.
Knowing that everything is in order for his children, Fuller’s estate plan gives him peace of mind.
“I want to make sure they’re in safe hands and will be well taken care of and supported after I’m gone,” she said.