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Estate Planning: Do You Have These Documents Prepared?

Retirement Funding Insights Taxes

Estate planning can be a very difficult and complex process but it can also be pretty easy. The key is knowing your current situation and what you need. Most importantly, this is a process that nearly everyone should go through. It includes creating or reviewing legal and tax implications, investment strategies, and personal questions to ensure your estate is set up efficiently.

As we approach the halfway mark in 2022, let’s look at some of the most important estate planning documents you should have prepared.

Wills & Trusts

One of the most important and well-known parts of your estate is your will or trust. A will is a document that spells out your wishes regarding the distribution of your assets and care of any dependents if needed. A trust is a tax-advantaged way to arrange ownership of your assets and allows a third party to hold these assets on behalf of a beneficiary.

Any estate planner worth their salt will most likely find a use for both of these documents as they are usually part of a well-crafted estate plan. By preparing these important documents, you can help protect your legacy and make the transition of assets easier when you are gone.

There are also two subsets to these documents: living trusts and living wills.

1. What is a Living Trust?

A living trust is a legal document that places your assets in a trust while you are alive and also designates where these assets will go upon your death. Many investors will implement a living trust into their plan as it allows them to maintain control due to its being "revocable" (meaning that it can be changed). A living trust may allow your estate to bypass probate, which can be a long and costly process.

2. What is a Living Will?

You can also set up a living will, which is, a directive to physicians that explains your end-of-life medical care preferences. This will be important if ever you cannot communicate your wishes. A Living Will will help doctors and family members make decisions about your care based on what you would prefer (e.g., CPR, mechanical ventilation, tube feeding, organ donation).

In your living will, you may also specify a healthcare power of attorney, which is an agent who can make important healthcare decisions on your behalf.

Beneficiary Designations

A will or trust explains how you would like your assets distributed among beneficiaries, so it’s also important to update your beneficiaries as you build your estate plan. You should have a contingent beneficiary stated on all insurance and retirement accounts, as well as contingent beneficiaries stated in your will or trust. As things change, make sure you take time to review your beneficiaries (e.g. marriage or divorce, kids and grandkids, new in-laws, etc.). Having an outdated estate plan can be a recipe for disaster.

If you fail to name a beneficiary, your estate may end up in the hands of the court, which tends to be a very impersonal way to handle your assets after your passing because a judge has no familiarity with you or your wishes.

Power of Attorney

Power of attorney (POA) is given to the person of your choosing known as an agent. This is the person you designate to act on your behalf and oversee your will if you are unable to do so. Just like above, It’s important to designate POA because if you don’t, the court may decide how your will and assets should be managed.

Your POA does not have to be a family member, either. You can choose a trusted friend or financial advisor to act as the agent of your will, especially if they have a strong financial and estate planning background.

Letter of Intent

A letter of intent might cover other details that aren’t included in a will, such as funeral arrangements or a decision for a particular asset. Unlike a will, most letters of intent aren’t legal documents, but they shed some much-needed light on the situation after your passing. The more information you have for your beneficiaries, the better. A letter of intent can help fill in any gaps in a will and answer questions your beneficiaries or the probate court might have.

These are just a few of the important documents you should consider adding to your estate planning strategy right now. Schedule a call with one of our financial planners today to talk about everything you need to know when getting your estate in order.

About the Author

James M. Comblo, CFF
is a Partner and the Chief Compliance Officer at FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients accomplish their dreams both with investments and their personal lives. To learn more about him click here.