Everyone is busy. The breakneck pace of modern life leaves little time for reflection. In addition to taking care of yourself, parents are focusing on the ever-changing needs of children while often simultaneously caring for aging parents. It is hard to think about the big picture when we need to cook dinner and walk the dog (even though someone shorter than you insisted that they would take care of the latter).
What if something happened to you? If a debilitating illness prevents you from taking care of your family? Organizing your affairs both in the event of incapacity and death is a gift to your loved ones. It will mean that they do not have to guess about your wishes. It also means that you, instead of Texas law, determine the guardians of your children, who will take care of you if necessary and to whom your property passes.
Whether you need to update your current estate plan or create one for the first time, every parent needs to consider the following:
- Guardians for children. What happens to your children if you die? If you become incapacitated and cannot care for them? Choosing a guardian for a minor or incapacitated child is one of the most important decisions you can make. And wouldn’t you rather name a guardian as opposed to leaving it to a court? Revisit your decision every couple years to see if you are still comfortable with the person you named guardian or to change the appointment.
- Beneficiary designations. Review the beneficiary designations on your retirement accounts and life insurance policies to make sure the beneficiaries are correct and coordinate with your estate plan. A divorce or death may have changed things since you last filled out your designation form. Further, check your bank and brokerage accounts. If there is a survivorship designation, that account will not pass under your will. This kind of asset is referred to as a non-probate asset. For example, a “joint with right of survivorship” bank account will be controlled by the designation on file with your bank.
- Trusts. Should you leave your estate outright to your spouse or children or in a trust? Trusts are not just for the wealthy. A properly prepared trust can provide a certain level of creditor protection and asset protection in divorce. Further, a special needs trust should be considered if your child could be disqualified from government benefits because of his or her inheritance.
- Powers of Attorney. You understand the benefits of an estate plan but think, “Aren’t I too young for a will?” A complete estate plan includes more than just a will. What if you are in a debilitating accident? Who takes care of your finances and your medical decisions? You can tackle these issues in a durable power of attorney and medical power of attorney. Moreover, a health care directive gives you the opportunity to outline your wishes in case of terminal illness.
- Taxes. I have yet to meet a person who enjoys writing a check to the taxman. If you have a taxable estate above $5.43 million (including life insurance, retirement accounts and certain other assets that pass outside of your will), your estate will be subject to the federal estate tax in 2015. A tax-planned will and other specialized techniques can minimize the estate tax and preserve your wealth.
There is no one-size-fits-all approach to estate planning. It will take some time and thoughtful discussion. However, there is no substitute for the peace of mind that will come with an estate plan that reflects your wishes and takes care of loved ones when you cannot.