5 STEPS TO CREATE AN ESTATE PLAN – PART II

You can’t do this all alone.  You have to assemble a team to help.

Your estate plan involves more than just you.  Here are some of the main people involved:

Your attorney – An attorney can help guide you through the process of building an appropriate plan.  Attorneys also may specialize in certain areas of estate law, such as special needs planning or elder law, so consider whether that expertise may be useful as you build your estate plan.

Your financial advisor – Your advisor can help you take inventory of your assets and work with your attorney to create a tax-efficient plan that serves your family’s financial needs.

Estate executor – This is the person you designate to manage the disposition of your estate.  They will need to, among many other tasks, file court papers, pay taxes, fulfill any financial obligations of your estate, and make sure your assets are distributed as you intended.

Guardian – In the event that you (and your spouse or children’s other parent) pass away, you need to designate a legal guardian for your minor children.  A guardian may also be necessary for an adult child with special needs, or even for an aging parent.

Power of attorney – A power of attorney (POA), also known as “attorney in fact” or “agent,” is a person you can appoint in writing to manage your financial affairs or your medical decisions while you are alive based on your instructions.  You may delegate this duty for financial and medical decisions to one person or separate people.

Trustee – A trustee carries out the instructions in the trust document, and is responsible for managing the assets and tax filings.  The trustee also makes distributions to the beneficiaries according to the terms of the trust.  In some cases, a corporate trustee may make sense, such as when there’s a more complicated trust to oversee.

  1. Consider creating a trust

There’s a common misconception that trusts are only for the very wealthy.  However, trusts can play an important role in many estate plans.  They give you more control as to how assets are distributed and allow you to keep the details of your assets out of the public eye after you die.  In addition, trusts also can:

  • Reduce the taxes owed by your estate and heirs
  • Protect your assets from creditors and lawsuits
  • Put conditions on how and when your assets are distributed

People may often use a trust in conjunction with a will, but trusts can be more expensive.  Creating an estate plan that includes a trust can cost from approximately $1,000 to more than several thousand dollars, depending on the complexity of the situation and assets involved.  The expense of building an estate plan is generally a one-time fee.  However, there may be recurring costs associated with the administration of certain kinds of trusts or with the revision of your plan over time.

There are many kinds of trusts, each with specific advantages and disadvantages.  One of the most common is a living trust, which lets you retain control of the assets you place in the trust while you’re alive, then transfers them to your beneficiaries after your death.

If you do establish a trust, you’ll need to name a trustee.  The trustee is responsible for making sure the trust does what it intends.  The trustee’s responsibilities include managing the assets, ongoing administration and tax filings for the trust, as well as making distributions to beneficiaries according to the terms of the trust.  For instance, you may want your children to use the trust funds only for higher education.  Your trustee would make distributions from the trust in accordance with the trust document.

When choosing a trustee, pick someone you trust.  Consider their age (often you want someone younger) as well as how confident you are in their decision-making ability.  A trustee may be a sibling or a close family friend, but also can be an independent corporate trustee with no ties to your family.

Read Viewpoints on Fidelity.com: Naming the right trustee

  1. Update your estate plan regularly

Creating an estate plan is a great accomplishment.  But it’s not a plan that should sit around gathering dust.  Indeed, you’ll likely need to update your plan regularly so that it continues to reflect your wishes and needs, which may change along with your family and finances.

Also consider updating your beneficiaries.  Most financial accounts, such as insurance policies, retirement savings accounts, or brokerage accounts, require you to designate a beneficiary, and these beneficiary designations typically trump any directions in a will.  The estate planning process is a good time to make sure you’ve identified beneficiaries in each of those accounts, and to consider whether those beneficiary designations mesh well with your overall estate plan.

Experts recommend reviewing your estate plan every 2 to 5 years, and updating it after major life events, including marriage and remarriage, divorce, births or adoptions, and deaths.  Changes in your financial goals; purchases or large assets such as a home; or major financial events such as a bankruptcy, retirement, or business sale, are also important milestones that justify a review of your estate plan.

Procrastinating on creating an estate plan is certainly tempting.  But having a well-conceived plan is more than worth the time and money it will take to build it.  You’ll give your loved ones the authority and guidance they need to navigate a tough situation, that way you can rest easy, knowing that if something unexpected happened you’re prepared.

Leave a comment

Filed under Blog

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s