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Too many young families put off estate planning. Considering what will happen when you die may be uncomfortable, but having a proper estate plan is essential to prepare for the unexpected. In the event of an illness or accident, you need measures in place to ensure your spouse and children are provided for in your absence.<\/p>\n
Fortunately, estate planning sounds a lot more difficult that it really is. The process can be a bit more complex for families with wealthy estates and complicated holdings, but for most people it\u2019s fairly simple. There are five key parts to an estate plan for young families:<\/p>\n
If you become incapacitated, you\u2019ll need someone to handle your affairs and provide for your children. If you\u2019re married, your spouse can do that, but what happens if you and your spouse are both incapacitated? However unlikely that scenario may seem, it\u2019s better to be over-prepared than under-prepared. Select a trusted friend or family member, and grant them legal authorization to act in your behalf with a durable power of attorney<\/a>.<\/p>\n This individual (known as the attorney-in-fact) will manage your finances, pay your bills, and dispense your assets as needed to provide for your children. The attorney-in-fact may not necessarily be the guardian chosen to take your children in, but often times they\u2019re one in the same. As long as the power of attorney is worded correctly, the attorney-in-fact will only have access if you become incapacitated. You are free to revoke the document at any time, and you can even stipulate which assets they can control if you prefer to not give him or her full access to your assets.<\/p>\n Don\u2019t confuse a living will with your last will and testament. A living will, also known as an advance healthcare directive<\/a>, is a legal document that lays out your end-of-life healthcare preferences. Should you become incapacitated, your doctors will refer to your living will when deciding which treatment options are best for you. You can broadly authorize any and all treatments to save and extend your life, or you can specifically address treatments that you aren\u2019t okay with.<\/p>\n Common topics that people address in their living wills include palliative care (treatments to alieve pain and suffering), resuscitation (such as a do-not-resuscitation order to allow a natural death), and artificial life support. As with the power of attorney, your living will only takes effect when you are incapacitated. As long as you can communicate with your doctors, your healthcare professionals won\u2019t need to consult the document.<\/p>\n In addition to your living will, it\u2019s also smart to empower a healthcare proxy. If you are incapacitated, this individual will have the authorization to see your medical files, speak with your doctors, and make important healthcare decisions based on the directions in your living will. You can convey this authority through a healthcare power of attorney.<\/p>\n A letter of intent is not legally binding\u2014rather, it offers unofficial instructions for your loved ones. Since your will may not be opened until days or weeks after your funeral, it\u2019s important to provide direction on matters that can\u2019t wait, such as who is to care for your children, how your children will be financially supported, and your funeral and burial plans.<\/p>\n First and foremost, you\u2019ll need to designate a guardian<\/a> for your children. Clearly identify this guardian in your will, and if possible, include one or two backup guardians who can care for your children if the primary guardian cannot. Keep in mind the guardian(s) have the right to decline, so be sure to discuss this with them ahead of time to ensure their understanding. Without a designated guardian in your will, your children will be placed with next-of-kin.<\/p>\n Second, you\u2019ll need to nominate an executor to manage your estate. The executor (also known as a personal representative<\/a>) will be tasked with closing your estate. The process includes opening probate, gathering your assets, settling your liabilities, filing and paying your final taxes, and distributing your assets to your beneficiaries. For this position, it\u2019s best to go with someone who is responsible, trustworthy, and financially savvy\u2014usually next-of-kin, but you could nominate a trusted advisor, such as an attorney or financial advisor. As with selecting your guardian, it\u2019s best to nominate a backup executor in case the primary executor is unavailable.<\/p>\n Before you start divvying out assets in your will, it\u2019s helpful to understand which assets can be transferred by will (known as probate assets), and which assets cannot be governed by a will (known as non-probate assets). Non-probate assets have a contracted beneficiary on the account, so they are naturally positioned to transfer to your beneficiary without going through probate. You don\u2019t need to address these items in your will. Instead, just make sure the right beneficiaries are listed on the account. Non-probate assets include:<\/p>\n Once you\u2019ve allocated your non-probate assets, address the remaining assets subject to probate in your will. Probate assets include:<\/p>\n As you\u2019re planning how to transfer your assets, keep in mind that minors cannot own or receive assets, so any assets you transfer to your children would require a court-supervised guardianship or conservatorship. Instead of directly transferring assets to your children, it\u2019s usually better to establish a trust for their benefit.<\/p>\n <\/p>\n Trusts<\/a> are essential for young families with children. A trust ensures your children are provided for without the hassle of a court-supervised guardianship, they let you dictate how the funds are to be used (e.g. providing income through age 18 and full access to the assets upon graduating high school), and as an added bonus, assets inside a trust are not subject to probate. Considering how probate court can take a minimum of 4 \u2013 6 months, a trust that can provide immediate income to your children is far better than making your children\u2019s guardian pay for their expenses out of pocket until probate closes.<\/p>\n Every trust has three parts: a trustee to manage the assets, a beneficiary to receive income and\/or principal, and a trust agreement that establishes the terms of the trust. If you set up a trust during your lifetime it\u2019s called a living trust; if you direct a trust be opened after your death through your will, it\u2019s called a testamentary trust.<\/p>\n You\u2019ll also need to decide if the trust is revocable<\/a> (meaning you can amend or dissolve the trust during your lifetime), or irrevocable (the trust agreement is iron-clad and cannot be changed). There isn\u2019t a single type of trust that\u2019s best for everyone, but when it comes to planning for young families, a revocable living trust is most commonly used.<\/p>\nLiving Will<\/h2>\n
Letter of Intent<\/h2>\n
Last Will and Testament<\/h2>\n
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Trust<\/h2>\n