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May 8: What State is Your Estate In?

"State" - the particular condition that someone or something is in at a specific time.

Example: "the state of the city's finances". Is your estate in good condition? Estate? What estate? may ask. Read on...

"Estate" - all the money and property owned by a particular person, especially at death.

Example: "in her will, she divided her estate between her husband, daughter and son". Most people don't realize that they have an estate while they're living. You do, and to have an estate in good condition, you must do estate planning.

Estate planning, like life insurance, is often put off while we run around in our busy worlds. We don't comprehend the importance of either - until we need it. The purpose of estate planning is protection. Protection for you while you're alive, and protection for your heirs and beneficiaries after you're gone. Don't avoid it because you think of it as planning for death. Think of it as planning for life - yours and your family's. It gives you and your loved ones peace of mind, so that you can live each day without financial worry.

The first step to estate planning is having those talks with the people we love. Not surprisingly, many more people are creating their wills and health care directives since the coronavirus. It's an opportunity to really think about what you want for yourself and your family, and convey those desires verbally. Be ready to answer questions and calm fears. Being proactive, instead of reactive, tends to bring peace to any situation. Do your research: read online blogs and books by financial advisors (Suzi Orman has a book about almost every financial situation!), and speak to people you trust and can learn from.

There are many different ways to plan your estate - and many different documents to use in the process. The 4 main documents that people use are:

  • Last Will and Testament - provides your instructions, but does not avoid probate. Any assets in your name must go through your state's probate process, which can be lengthy (9-24 months in some states) and expensive, before your assets can be distributed to your heirs.

  • Health Care Directive - ensures your end-of-life wishes will be carried out, makes clear your desires for medical treatment, and allows you to appoint someone to make decisions for you when you cannot make them for yourself.

  • Power of Attorney - a legal document in which you designate another person (called the agent or attorney-in-fact) to act on your behalf in legal and financial matters. The agent can have broad legal authority or limited authority to make legal decisions about your property and finances. This authority can be granted alongside your ability to make your own decisions, or only after you are no longer able to make your own decisions. Power of Attorney ends at death.

  • Living Trust - a legal document created during an individual's lifetime where a designated person,called a trustee, is given responsibility for managing the assets in the trust. Simply put: you put your assets into the trust, you manage the trust and you are the beneficiary of that trust while you're living. You also name a trustee to act in your place when you're no longer able, or after you're gone. Your assets then pass to your heirs without going thru the probate process - saving time, money and stress.

There are many different sources that you can use to prepare these documents - from free to expensive. Office supply stores sell legal document packages for under $20 that you can fill out, sign and have notarized. Other companies sell templates online and charge modest fees (up to a couple of hundred dollars). You can make unlimited changes to your documents and update them as needed without having to recreate them all again.

If you're signed up with a legal plan with your employer, these forms are usually available on the legal company's website for free to it's members. Many of these legal plans also provide access to attorneys for free will creation for all members and free trust creation if you have children that are minors.

Then there are estate attorneys that can create and execute all of these documents for you, on an hourly or flat fee basis (from hundreds to thousands of dollars). Using an estate attorney provides a level of confidence that your forms are filled out, signed, notarized, witnessed and executed correctly so that there are no surprises later. You may want to use a free or low cost document to start a rough draft, and then schedule a phone call (there are lawyer phone services that charge a minimal cost to speak to an attorney for a certain amount of time) or an in-person meeting with an attorney to ask any questions that you may have.

Don't forget life insurance! Which one - term vs. whole life (now called universal life)? Term is low cost, it only covers you for a "term" (10, 15, 20 years) and then ends. If you survive the term, you walk away with nothing and your family is left without insurance unless you buy another "term". Usually this will be at an age where it will be more difficult - and more expensive - to get because the odds are that a medical condition will pop up as you get older and you're now a risk!

Whole life is way more expensive (I think to dissuade you from getting it) but you are building funds within your policy that you can "borrow" against and use for emergencies during your lifetime. As long as you pay the loan back, the face value of your policy remains the same. You can also take your money out (some or all of it) and use it for medical care if you are diagnosed with a terminal illness. If you leave some money in, your heirs will inherit it. Talk to an insurance professional and ask if they get paid a flat fee or by commission! If it's by commission, they may be pushing a particular product that's better for them instead of you. Investigate long term care insurance too. Do your homework, but do it!

Today we must also consider what we want done with our digital footprints - our email and social media accounts, as well as our websites. Do you want your Facebook page or Instagram to stay up, be taken down, or become a memorial? Also what will become of our devices (computers, laptops, tablets and phones) that are locked by passwords. If your important people don't have access to your passwords, these devices may become useless to your family. These considerations should be addressed in your estate plans.

Take Away: Estate planning is for everyone. It is not just for “retired” people, or “the wealthy”. Estate planning is often more important for families with modest assets, because they can't afford to not be prepared. Too many people don’t plan. "When you fail to plan, you plan to fail" and this is especially true with estate planning. When you don't plan, your family's financial stability is often shaken and they're left to fend for themselves. If you don’t have a plan, your state has one for you - but you may not like it. All states have a way to disburse estate assets for those that don't have a will in place. Without written instructions, the courts will disburse your assets the way they see fit. Once your estate documents are created, choose a way to keep them organized and safe! File folder, notebook or a box under the bed. Whatever method you choose, make sure your important people know where to find them.

Tomorrow we will discuss organizing your medical information so that you can stay on top of your health care.

About the Author: L. Sidney Irving is the owner of Sidco Properties, a real estate company dedicated to educating and assisting those that want to buy or sell a home, Sidney loves to organize herself and those around her because she believes that an organized space brings peace and fosters creativity. May the power of organization be with you!

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