An estate plan is a collection of important legal documents that specify how you want your final wishes to be carried out if you should become incapacitated or die. Everyone needs an estate plan, but it’s especially important for new parents to get these documents in order.
Most Americans have no formal estate plan in place to specify how they want their final wishes to be carried out after they die. A 2023 study by LawDepot found that 73 percent of survey respondents did not have an estate plan.
Part of the problem might be in the term “estate planning.” For many people, the word “estate” conjures up images of multimillion-dollar mansions with sprawling lawns. But the truth is, everyone has an estate. Your estate is simply everything you own, including your bank accounts, your home, your vehicles, your furniture, your keepsakes and even your beloved pet.
The most important documents in an estate plan
A formal estate plan can include many different documents. Here are some of the most important components:
- A will to ensure that your property is distributed according to your wishes
- A trust to help limit estate taxes or legal challenges
- A durable power of attorney so a person you assign will act on your behalf when you cannot do so yourself
- Beneficiary designations to specify who will receive what upon your death. Be sure to name both a beneficiary and a backup or contingent beneficiary. You want to make sure you name the same beneficiary(ies) on all your documents, including your will, your life insurance policies, your 401(k) plan and other documents.
- A letter of intent to your executor or a beneficiary to define what you want to be done with a particular asset after your death or incapacitation, including funeral details or other special requests. This letter will help guide the distribution of your assets if your will is found to be invalid for some reason.
- A health care power of attorney to designate an individual you trust to make important health care decisions on your behalf if you become incapacitated
- Guardianship designations to specify who will raise your children if you die. Again, choose both a guardian individual or couple and also a backup or contingent individual or couple.
Confusion and chaos reign when you die without an estate plan
If you die without a will, the legal term for that situation is that you die intestate, and then the local government decides how to handle your possessions, who will raise your children and even what will happen to you if you become incapacitated.
When people die intestate, their estates have to go through probate. It’s a time-consuming process that typically causes their family members a lot of anxiety and frustration.
And that’s not all. Many times, when people leave behind no instructions for how to carry out their final wishes, their families become embroiled in arguments over who gets what. It can tear families apart. You’ve probably heard stories about people sneaking into the deceased person’s home and taking what they want so no one else can get their hands on it. In some cases, arguments arise when one family member suggests that all assets be split among the survivors equally, but others argue that one family member got more financial help from the deceased person over his or lifetime and therefore should receive less than everyone else.
Having an estate plan in place will also provide specific guidance for what you want to happen if you should become incapacitated. If you do not put your wishes in writing, and then you become sick or injured and end up in a coma, for example, some family members might be adamant about keeping you on life support, while others will argue that you should be allowed to pass with dignity. If you do not sign an advance directive, your medical team and your family will be left to decide what to do. This can cause a lot of confusion and chaos at a time that is already stressful.
If you are a parent, your most compelling reason to get an estate plan in place is that you want to make sure your child is taken care of if something happens to you. If you do not name a guardian in a legal document, the court will appoint a guardian if you and the child’s other parent pass away. You do not want a judge deciding who will raise your child or children if you pass away unexpectedly!
Under some state intestacy laws, if you are married at the time of your death, your current spouse could inherit all your assets, but this might not be what you want if you have children from a previous marriage. If you and your spouse both have wills, naming the same guardian can minimize the potential for disputes.
Potential chaos and confusion can be avoided simply by taking the time to get an estate plan in place with a trusted estate planning attorney. Ask your financial advisor if he or she already collaborates with an estate planning attorney or can recommend one.
Because there are so many components involved in an estate plan, it is typically a team effort and involves many professionals, such as your financial planner, estate planning attorney, accountant, life insurance advisor, tax attorney, banker and broker.
Welcoming a new child to the family, through either birth or adoption, is an exciting time, and there’s so much to do as you get your home ready. Please put estate planning at the top of your list! It should be the No. 1 priority of new parents — of all parents — but it often gets overlooked. No, it’s not as much fun as getting the nursery ready, planning a baby shower or buying baby clothes, but it is the single most important thing you can do for your new child.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy can guarantee your objectives will be met. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.