3 reasons why you may need an estate plan and what may prompt you to have it reviewed.
So, you may be sitting there, or maybe even Googling, “Do I really need an estate plan if I’m not ultra-wealthy?” The answer really boils down to what matters most to you. However, we are here to tell you, that getting a solid estate plan in place is a really smart financial move. It brings immense peace of mind (at least in our opinion). We know it is not the most thrilling topic or way to spend time; however, the hardest part is doing the initial plan. Once that is completed it will take little work to maintain.
To start we will define what an estate plan is. Then we will explore three reasons why you might need one, and wrap it up with a few situations that could prompt you to revisit your estate plan in the future.
What the heck is an Estate Plan?
Before we dive into the why, let us clear what an estate plan actually is. No it is not just a fancy word for the ultra rich. An estate plan is a collection of legal documents. These documents outline what happens to your assets when you die or if you become incapacitated. Typically it will include the following:
- A will
- Power of attorney for healthcare
- Power of attorney for finances
- Potential trust documents
Well that was painless!
Now on to the 3 reasons why you may need an estate plan.
1.You have children.
If you have minor children, protecting them is crucial especially if you are no longer here to do so yourself. Your will can appoint a guardian to care for them if something happens to you. You can even designate a secondary guardian as a backup to be extra prepared. I know it’s hard to imagine not being there for your kids. Hence why it is so important to have that plan set up just in case you cannot be.
If you do not have children you are not off the hook! It is still important (if not more important). Why? Because, we imagine you would still want to be the one to determine who inherits your estate.
2.You work hard and have accumulated assets.
It is hard work and sacrifices that you have made to accumulate your assets. Pat yourself on the back first. And second give yourself the gift of deciding what would happen to those assets if and when you pass. An estate plan allows you, to determine what happens to your hard-earned money and assets. You get to have a say in the decisions and an attorney will help map it out for you.
What if I do not have a plan or will?
What would happen if you did not have a will or designated beneficiaries? Without one, your assets would go through probate and the government would decide who inherits your estate. At the very least, update your accounts, and any policies you own with your designated beneficiaries.
*Health Savings Accounts have unique tax situations for beneficiaries. Checkout our blog for more information- What is a Health Savings Account (HSA)?
3.Providing clarity in a time of stress.
Your estate plan will provide clarity for your family during a very stressful time. Death and/or sickness really puts a strain on families. Without a clear plan, loved ones may end up fighting over your estate. We have seen cases of this where it causes permanent rifts within a family unit that did not have one before.
An estate plan allows you to specify who controls your assets and finances as well. This is especially important if you have unique or complex family dynamics.
With your estate plan you can get a change to offer creative ways of providing additional support to certain family members that need it while allowing different type of support to others. It is a good way to what we hear often, “be fair but not necessarily equal”.
4. A Bonus reason for an estate plan- Healthcare decisions!
When setting up your estate plan, you’ll appoint power of attorney for your healthcare. This person will help to make decisions on your behalf if you are unable to. You can also outline your wishes for end-of-life treatment, palliative care, and specific medical procedures, etc. While this topic is even harder and not pleasant to think about, knowing you have made these decisions can help you rest easier when the “what ifs” start creeping in.
In reality there are more than just 3 reasons for an estate plan!
While estate planning might not be the most exciting task, it is an essential one. It protects your loved ones, ensures your hard work benefits those you choose, and can provide clarity during difficult times.
Ok, we have shared 3 reasons why you need an estate plan, now we will share two common reasons people avoid it.
Uncomfortable
We understand. These are not light car ride conversations. They take time and a bit of commitment to see the conversations all the way through.
Cost
We have heard a reason not to complete it is due to the cost and we get it, it’s not an exciting expense. However, it’s probably less than 3% of your total assets (and that’d be high), so a really small piece of your net worth when you think of the bigger picture it provides.
The 3 reasons for an estate plan moved you to action, now on to maintenance.
Finally, remember when we said once it’s done it does not take a ton of maintenance? Well here are just a few common reasons why you may need to have your estate plan reviewed after completing it.
Your net worth changes.
Maybe you receive a large inheritance, or win the lottery and it significantly changes your life. This would most likely be a situation where you’d want to have your estate plan reviewed to confirm it still aligns with your needs.
New laws pass.
Keep an eye out for this as new laws come out quite often that could change what an estate plan can or can not do. We help our clients navigate this by suggesting reviews when new laws pass.
Family changes.
A recent change of marriage, divorce, death, special needs, kids, grandkids, etc. Any time you have a big family change you will most likely want your estate plan reviewed to confirm it still aligns with your situation.
Wrapping up why you need an estate plan.
When you have your estate plan reviewed it will cost money; however, looking at the bigger picture it’s a small percentage of your overall net worth and provides immense value in our opinion. We would advocate for you to work with a professional to complete your estate plan. There are online sites for the DIY-er; however, they typically are going to be a draw due to their simplicity and low cost. Which truly may not be where your needs are at.
In summary, the 3 (well technically 4) reasons you need an estate plan are you have minor children, you have worked hard and accumulated assets, you want to provide clarity for your family and you want to make your own healthcare decisions! Easy enough, now have fun planning.