Guidance

RESOURCES TO HELP SHAPE YOUR FINANCIAL FUTURE

When most people think of estate planning, they imagine multimillionaires on yachts or elderly people entering the last chapter of their lives. The truth is, estate planning is for everyone—from the wealthy to the not-so-wealthy—age 18 and older.

Moreover, estate planning is not just about planning for death; it is about planning to protect you, everyone you love, and everything you have whether you are healthy, incapacitated, or deceased.

Essentially there are eight estate planning life stages: Young and Single, Single but Committed, Engaged, Just Married, New Parents, Divorced, The Middle Years, and The Golden Years. Following is a summary of the estate planning considerations at each of these life stages.

Young and Single
Children under 18 typically have their parents make medical and financial decisions for them. Under the law in most states, once a child turns 18, parents no longer have the right to make these decisions. However, if a medical emergency arose for a child away at college, and the child was incapacitated, the parents would want to be able to make medical decisions for that child and talk to the medical providers. Similarly, if the child’s bank account (which is typically funded by the parents), was compromised or subject to identity theft, the parents would want to be able to discuss the matter with the financial institution on the child’s behalf.

There are four essential estate planning documents that address these risks at this stage in life:

  1. A general durable power of attorney would enable you to designate who will control your finances should you become incapacitated;
     
  2. A health care power of attorney allows you to designate who will make medical decisions on your behalf;
     
  3. A living will/medical directive allows you to express your wishes regarding life-sustaining medical treatment; and
     
  4. Under the Health Insurance and Portability Act (HIPPA) you sign a release allowing your designated agent to discuss your medical condition without violating any privacy laws.

Without these necessary documents, a parent may be forced to go to court to seek guardianship over their loved ones to exert control.

Single but Committed
Committed couples often choose not to get married for various reasons but do intend on providing for each other upon passing. In this situation, it is important—at a minimum—to have a Will or Living Trust prepared that specifically designates what each life partner wishes to bequeath. Failure to have these wishes defined in a legal document (meaning do not write your own Will), assures that some, and perhaps all of, your estate will end up with individuals other than whom you intended.

Engaged
A prenuptial agreement is not strictly for people with a vast estate. One of the greatest sources of family discord is the “in-law” exercising control over the inherited wealth of their spouse. In fact, one of the leading causes of divorce is a lack of communication regarding finances and poorly set expectations for how finances will be handled in the marriage. A prenuptial agreement, although uncomfortable, is a sure way to get people engaged in this conversation, and perhaps discover some things about their potential life mate.

Just Married
This is the time to revise durable power of attorney, health care proxy, and HIPPA release documents, especially if there is no question about the spouse serving as designee. To illustrate the importance of having these documents in order, consider the high-profile case of Terri Schiavo. She did not have a health care power of attorney. Upon incapacitation, her husband and parents fought for over seven years in the courts to determine who had the right to make medical decisions on her behalf. This is the time to have a Will and/or a Trust prepared.

In many states, when someone dies without children and without a Will or trust, the surviving spouse may have to split the estate with the deceased’s parents. This is the best time to plan to avoid any unintended results. This is also a good the time to consider life insurance and consider changing beneficiary designations on retirement accounts. Open communication between spouses is vital to setting mutually agreed upon expectations at this stage in life.

New Parents
It goes without saying that becoming a parent changes everything, including estate planning considerations. In that regard, the most important task at hand at this stage is to designate a guardian or co-guardians who will step in to care for the child/children in the event that both spouses pass away. In addition, setting up a revocable trust at this stage is ideal because it is the only vehicle that allows “control from the grave.”

Without such a trust, a child could inherit the entire estate of his or her parents upon reaching 18 years of age. A trust, however, allows for staggering distributions until the child reaches ages of maturity or even for the rest of his or her life. The trust can also protect the inheritance from being controlled by the child’s spouse, or to ensure some remains for potential future grandchildren.

Finally, a trust can also protect the inheritance in cases where the child has issues with gambling or substance abuse, or a general inability to responsibly manage finances.

Divorce
The unfortunate truth is that half of all marriages end in divorce. During separating or divorcing, existing plans should be revoked and beneficiary designations changed immediately. Existing trust documents should be revised (or in the case of re-marriage, completely re-written) to provide for a new spouse and any children from the previous marriage. In addition, retirement assets may be the subject of divorce proceedings, for which the advice of counsel should be sought.

The Middle Years
At this stage, an estate plan review is in order to ensure it reflects the readiness of any adult, or nearly-adult, children to inherit an estate outright. If any such children are not deemed ready for such a windfall, or if control of distributions after death is desired, a revocable trust should be established. Again, this is the only way to control from the grave. This is also an appropriate time to set up trusts for grandchildren, if so desired, and to consider purchasing long term care insurance.

The Golden Years: Retirement and Beyond
Retirees should make it an annual practice to conduct an estate plan review and update documents as needed. Consider if the people named as power of attorney and/or successor trustee are still appropriate and, more importantly, ready, willing, and able to serve. Consider amending a trust to name a corporate trustee to handle the onerous task of estate settlement and administration upon death. A corporate trustee can also work with the surviving spouse and/or children as co-trustee in handling the numerous duties post death. This is also the time to clearly communicate end-of-life wishes and funeral arrangements.

Clearly, estate planning is not a ‘set it and forget it’ exercise, but rather an ongoing process throughout all life stages that requires careful consideration. To learn more about how you can benefit from more rigorous estate planning, contact a Wintrust Wealth Management professional.