Gifts + Estate Planning

Six Must-Haves for Estate Planning

BY Leslie Thompson | CFA®, CPA, CDFA™, Chief Investment Officer, Co-Founder | Aug 10, 2021

Many people think that estate planning is as simple as drafting a will or trust, however, there is other pertinent information you’ll need to include in your estate plan to ensure all of your assets are transferred properly upon your death.  A successful estate plan includes information that allows your family members to access or control your assets should you become incapacitated.

Here is a list of items that should be included in every estate plan:

1. A Will and/or Trust

There is a stigma that only wealthy people need to have a will or trust, but that assessment is simply not true.  A will or trust should be one of the main components of an estate plan, even if you don’t have substantial assets or consider yourself wealthy.  A will ensures that property is distributed according to an individual’s wishes, as long as it is drafted according to state laws.  Having a trust can help limit, or in some cases eliminate, estate taxes or legal challenges. 

The wording of your will and/or trust is critical.  A will or trust should be composed in a manner that is consistent with the way you’ve bestowed assets outside of the will.  For example, if you’ve already named your child as a beneficiary on a retirement account or insurance policy, you don’t want to bestow the same asset to another person in the will because it could lead to a contested will.

2. Durable Power of Attorney

It’s important to draft a durable power of attorney (POA).  You’ll assign a person or agent to act on your behalf in the event you become incapacitated.  If you don’t have a POA, a court may be left to decide what happens to your assets if you are found to be mentally incompetent.  The court’s decision may not be the same as you intended. 

A POA document can give your agent the power to transact real estate, deal with financial transactions, and make other legal and financial decisions as if they were you.  You can revoke this type of POA at any time that you are deemed to be physically able, mentally competent, or upon your death.  If you are married, it makes sense for spouses to set up reciprocal powers of attorney, however, it may make more sense to have another friend, family member, or, trusted advisor act as the agent. 

3. Beneficiary Designations

Maintaining a  beneficiary and a contingent beneficiary is important, as many of your possessions can pass on to your heirs without being dictated in the will, such as IRA and qualified retirement plan assets (e.g., 401(k) plan or 403(b) plan).  Beneficiaries should be over the age of 21 and mentally competent.

Insurance plans should always contain a beneficiary and contingent beneficiary as well because these may also be passed to heirs outside of a will.

If you don’t name any beneficiaries, or if the beneficiary is deceased, a court could be left to decide the fate of your funds.  This can lead to issues for your heirs as the court will be unaware of your situation or the person(s) you intended to leave your funds to, and a judge would unlikely make the same decision as you would have made. 

4. Letter of Intent

A letter of intent is a document left to your executor or beneficiary.  The purpose of a letter of intent is to define what you want to be done with your assets after your death or in the event you become incapacitated.  Some letters of intent include funeral details or other special requests.

While a letter of intent is not a legal document, it does help inform the probate judge of your intentions and may help in the distribution of your assets if the will is deemed invalid for some reason.

5. Healthcare Power of Attorney

A healthcare power of attorney (HCPA) is someone you can designate to make important healthcare decisions on your behalf in the event you become incapacitated.  If you are considering designating a HCPA, you should pick someone you trust, and someone who understands your wishes regarding healthcare and end-of-life decisions.  You should also consider appointing a secondary or contingent agent in the event your primary HCPA is unavailable or unable to act when needed.

6. Guardianship designations

Many wills and trusts incorporate guardianship designation clauses, some don’t.  If you have minor child or are considering having kids, choosing a guardian is incredibly important.  It is something that is often overlooked, especially if the parents are young.  Make sure you choose an individual or couple that shares your parenting views, is financially sound, and is genuinely willing to raise your children.  As will all designations, it is recommended that you should name a contingent guardian as well.

Without guardianship designations, a court could rule that your children live with a family member you wouldn’t have selected, or in extreme cases, the court could mandate that your children become a ward of the state.

There is more to estate planning than deciding how you divide your assets when you die – it’s about ensuring your family members and other beneficiaries are provided for and have access to your assets upon your incapacity or death.

Spectrum can help you sort through the complexities of estate planning.  Contact us to speak with a wealth planner and start your estate planning journey today.

This content is developed from sources believed to be providing accurate information, and provided by Spectrum Management Group. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.