At the end of the day, estate planning just means structuring your assets, but it’s not just about money. Sure, the uber-wealthy like to use different kinds of advanced estate planning strategies to structure their property in certain ways in order to reduce or eliminate taxes, protect their estate from lawsuits or creditors, or pass on multi-generational wealth to their children and grandchildren. You might think that when you “don’t have much,” there’s no reason to plan. You’d be wrong!
The truth is that people with smaller estates benefit immensely from estate planning because arguably for those people, everything they have is precious and needs to be managed right. If you are in this category, it becomes that much more important that your money is there if and when you need it, that your “estate” doesn’t get drawn to zero in unnecessary court costs or fees, and that your trusted loved ones know what to do (and can actually do it) in a time of uncertainty or emergency. Estate planning is about more than money. It’s also about peace of mind.
To see whether you might be in need of some basic estate planning, ask yourself if you can answer these questions today with confidence:
- Have you figured out who should manage things or make decisions for you if you can’t?
- Will your trusted loved one be able to access your bank accounts if you are incapacitated?
- Will your family have to go to probate court when you pass away?
Have you figured out who should manage things or make decisions for you if you can’t?
A big part of estate planning is to choose individuals to serve as your “agent” if you become incapacitated so that SOMEONE YOU TRUST can pay your bills, manage your affairs, take care of your children, and make important decisions on your behalf.
You give someone the power to serve as your agent for financial and property matters through a Durable Power of Attorney document, and through your Living Trust if you have one.
You designate someone to serve as your agent for all medical and health care matters through an Advance Health Care Directive.
You give someone the power to serve as your “Executor” to manage your estate after you pass away through your Will or (if you have a trust) Pour-Over Will.
If you are married, usually you would name your spouse as the first agent for both finances and health care but not always– that’s your choice. You should also name additional people (trusted family members or friends) to serve as alternates in case your spouse is unable or unavailable.
If you don’t have anyone you trust to name as your agent, there are professional fiduciaries that can be hired to serve in this capacity.
Will your trusted loved one actually be able to access your money and pay your bills if you are incapacitated? Do they have legal authority?
Figuring out who to name as your financial agent, health care agent, executor, trustee, etc, is the first step, but you can’t stop there! YOU MUST PROPERLY EXECUTE THE LEGAL DOCUMENTS. This is how your bank, brokerage institutions, hospitals and medical providers, insurance companies, utility companies, etc are able to do business with the people you have chosen to act on your behalf.
Without the legal documentation, your loved ones won’t be able to transact business or make any decisions regarding your care- they’ll need to get appointed by a court first, which takes time and money. When these things are needed, it’s often suddenly in the event of emergency. You don’t want to be waiting on a court order.
Will your family have to go to probate court when you pass away?
It is true that not all estates need to be probated at death, and if your estate is truly small enough, your family should be able to avoid court. As of the time of this writing in 2022, the amount you can have in your name and still avoid probate at your death is around $180,000.
However, pay particular attention to whether you own any real property (regardless of mortgage) and if you have any type of life insurance with a death benefit going to your minor children. If you have either, the probate court is likely going to get involved. In most cases, you can avoid this outcome by establishing and funding a living trust. Talk to a good estate planning lawyer in your jurisdiction for further guidance.
