For many, planning is a way of life. We plan for things all the time without thinking about it, whether it be vacations, home renovations, dinner, or family gatherings. Many of these plans are something to which we are looking forward. On the contrary, estate planning is often a forgotten element of a financial plan because it does not provide the same level of excitement as a trip to a new destination or a home renovation.
Although many consider it a dull topic, estate planning is an essential part of a comprehensive financial plan.
When you consider an estate plan, it should answer the following questions:
The core document of an estate plan. The will is the legal document that allows you to provide clear instructions on how you would like your affairs managed following your death. A will enables you to:
Without a will, one is said to die “intestate,” which puts the court system and state laws in control of how your assets are passed and to whom.
The advance directive is a legal document that addresses your wishes about your future medical care. An advance directive can be customized to your preferences to reflect any of your beliefs that may impact the type of healthcare treatment you want to receive. An advance directive can come into play in multiple scenarios. A few examples include if you (1) were in a coma, (2) suffered from dementia, (3) were under anesthesia, and (4) had an illness that left you unable to communicate. Dependent on your state of residence, an advance directive can be referred to as a healthcare directive, advance medical directive, designation of health care surrogate, and health care proxy.
The durable power of attorney is the legal document that authorizes someone to act on a wide range of financial and legal matters on your behalf. The power of attorney can be effective immediately (aging parents) or can become effective if you are incapacitated (dementia). The power of attorney allows an individual to transact on your behalf in certain matters such as filing tax returns, managing bank accounts, paying bills, and many others. If you do not have a power of attorney in place, your family may have to go to court to have you declared incompetent to take care of your financial matters then.
The healthcare power of attorney is the legal document that authorizes someone to act on medical decisions on your behalf. It allows them to communicate with your medical team and make decisions for your care. The difference between the healthcare power of attorney and advance directive is that the healthcare power of attorney names someone to make medical decisions when you are unable to do so, whereas the advance directive details the treatment you want when you can no longer communicate.
A revocable living trust is an estate planning instrument that allows you, the grantor, to specifically control how and when assets within the trust pass to your beneficiaries. This type of trust avoids probate, the court-supervised proceeding that authenticates your will and is publicly recorded. Therefore, it provides an additional layer of privacy. A revocable living trust may also offer additional creditor protection for your heirs and allows you to dictate by who and how trust assets are managed for your beneficiaries. This type of trust is fully revocable during your lifetime and becomes irrevocable upon your death. One critical relationship within a revocable trust is the role of a trustee. Typically, during your lifetime, you name yourself as trustee, but the revocable trust, like many other trusts, allows you to name a successor trustee to manage the trust assets upon your death or incapacity. The trustee can be a friend, family member, or a third-party corporate trustee, and each can serve alone (sole trustee) or jointly (co-trustee). The corporate trustee relationship is vital to consider since many individuals do not have experience managing money in a fiduciary capacity for others.
In closing, drafting estate documents is very important to any financial plan. Your documents should be reviewed at a minimum every five to seven years to ensure the fiduciary relationships and beneficiaries align with your goals since your estate composition is everchanging. Because estate plans can be complicated, it is recommended that you discuss your specific situation with your financial planner and a board-certified estate planning attorney licensed in your state of residence to ensure you are drafting the appropriate documents.
TIP: No matter how good your estate documents are, be sure to review your retirement account (IRA, Roth IRA, 401(k)) and life insurance policy beneficiaries to make sure they align with your estate documents or legacy goals since beneficiary designations supersede your will.
At Spaugh Dameron Tenny, our team of financial planners is always happy to help you understand your financial documents. We can also help you find a trustworthy estate planning attorney that will help you create a secure estate plan that includes all your assets.
As the Director of Financial Planning for Spaugh Dameron Tenny, Jordan applies his academic and practical experience in the creation and maintenance of the firm’s financial plans, as well as coordinating research efforts for products and strategies that may benefit clients. Originally from Canada, Jordan came to Charlotte on a golf scholarship where he attended Queens University of Charlotte. In addition, Jordan has a Master’s degree in Wealth and Trust Management.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists across the U.S. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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