Where To Begin With Estate Planning
What if you are no longer able to control your assets due to health concerns? Your estate plan should detail who can access and manage your assets as your proxy. Ideally, this person or persons should be the same people who will eventually inherit your estate. Everyone should have an estate plan. It isn’t only for the wealthy, older people. Let’s look at the components of a good estate plan.
Life insurance
There are two kinds of life insurance: term life and whole life. Below is how it relates to your estate planning.
Term Life Insurance
Term life covers you for a fixed period (10, 20, or 30 years). You choose the term when you purchase the policy, and if you die within that term, your beneficiaries receive the payout. This payout will have to replace your income and pay for your funeral and burial costs, so keep that in mind as you are choosing how much insurance to buy.
Whole Life Insurance
Whole life covers you until you die. It also provides a cash value that grows slowly in a tax-deferred account. You can use this later in life to borrow against or even to surrender for a cash payout. Keep in mind that this will reduce or eliminate any death benefit your heirs would receive.
Some whole life policies earn annual dividends, which you can either take in cash or leave in your account to:
- Earn interest
- Decrease your premium payments
- Repay policy loans
- Buy additional coverage
Long-Term Care Insurance
By the time you turn 65, the chances are 50/50 that you will have to pay for long term care someday. The average amount that people pay out of pocket is $140,000.[1] It’s essential to plan how you will cover nursing home costs, assisted living, or in-home care that Medicare won’t. This is where long term care insurance comes in.
Long term care insurance has become a complicated beast. Traditional policies are harder to find, and reading the fine print is essential. Some people tap into their home equity or rely on their children for care. Others use their whole life insurance policies to pay the bills. The important thing is to have a plan and discuss it with an attorney who can offer experienced advice.
Lifetime Annuity
A lifetime annuity functions as a personal pension plan. You can use it to supplement your 401K, IRA, and other retirement income, including Social Security benefits, for as long as you live. This type of account is usually purchased for the sole purpose of having an income stream that you can’t outlive. While there are ways your dependents can benefit from your policy, more often, once you die, the policy is used up.
Wills and Trusts
One of the main components of any estate plan is a will or trust. A will ensure that your assets are appropriately disbursed and cared for after your death. Without proper planning, your estate could be distributed by probate court rather than according to your wishes. It can also prevent family divisions over misunderstandings.
Trusts and gifts can have tax benefits. They also allow you to see your loved ones enjoying your generosity. The wording of the documents is essential to limit legal challenges. Everything must line up consistently. If you leave a retirement account to your niece outside of your will, don’t bequeath that account to your nephew within the will. It would likely lead to a contested will and a family fight.
Durable Power of Attorney
A Durable Power of Attorney names someone to act on your behalf should you be unable to do so due to physical or mental health issues that leave you unable to act for yourself. With a durable power of attorney, your agent (or proxy) can make real estate and financial transactions as well as other legal decisions on your behalf.
The durable power of attorney is only valid while you are still alive and unable to make decisions. It is revocable if you regain the ability to act on your own. Often, spouses set up reciprocal powers of attorney, but you can designate anyone you wish.
Beneficiary Designations
You should always designate insurance policies, 401Ks, and other accounts, to a beneficiary and a contingent beneficiary. A contingent beneficiary is a person who would inherit the asset if the primary beneficiary were to die before or at the same time as you (for example, if you both died in the same plane crash). Beneficiaries should be at least 21 years old and mentally competent.
As with a will, if you don’t name these people, the courts will have to disburse your assets, and they are unlikely to do so in the same way you would have.
Letter of Intent
A letter of intent doesn’t carry the same weight as a will in the eyes of the law. It is important, nonetheless, to write one. When you leave a letter of intent to your estate’s executor or a beneficiary, you are letting them know in your own words what you want to be done with your assets (or a particular asset). This can clarify things for your heirs, and if, for some reason, your will is deemed invalid, it may help the probate judge understand your intentions as they decide how to disburse your assets.
Healthcare Power of Attorney
A healthcare power of attorney designates someone as a proxy to make healthcare decisions for you, should you be unable to do so yourself. This is usually done within a healthcare directive, also known as a living will. The healthcare power of attorney usually designates a spouse or other trusted family member to make these decisions.
As meaningful as the document itself are the conversations, you must have with this person. By expressing and clarifying your wishes to this person, they will be able to make decisions, should they need to, with confidence that they are doing what you want. As in all estate planning, it is crucial to have a secondary proxy if your primary proxy cannot act when necessary.
Guardianship Designations
If you have minor children, the most important decision you will make is who will care for them should you die. This person, or people, should be financially sound. They should share your value system and should be willing to raise your child or children if called upon to do so.
You will want to have at least one contingent guardian if your first choice changes their mind or is unable to take in your children. Without these designations, the courts will decide who will take your children. It may not be whom you would want to raise them. In the worst-case scenario, your children could end up as wards of the state.
Seek Counsel from an Estate Attorney
White & Associates is experienced in estate planning. If you would like to know the best way to protect your assets for your heirs, contact us today.
We are lawyers in Elk River, MN, that serve clients throughout the Twin Cities Metro and our neighboring cities, including Saint Cloud, MN Albertville, St. Michael, Buffalo, Anoka, Coon Rapids, Monticello, Big Lake, Ramsey, Rogers, Princeton, Zimmerman and Becker, Minnesota.
[1] Stark, Ellen. “5 Facts You Should Know About Long-Term Care Insurance.” AARP, 1 Mar. 2018, www.aarp.org/caregiving/financial-legal/info-2018/long-term-care-insurance-fd.html.
