Everyone needs an Estate Plan. Here are 6 simple steps to take to make sure you have all bases covered.
Before I knew what it actually meant, I used to think that Estate Planning was something for very wealthy people that own tremendous mansions. The reality is Estate Planning is just about making sure you have everything in order in case you were to become incapacitated or were to die. It is actually very important for just about everyone to do some degree of Estate Planning. The three big pieces of Estate Planning that apply to most of us are a will, power of attorney and health care proxy.
A will is a legal document that lays out your final wishes. It basically tells the world who you want to get all of your belongings after you pass away. The will is authenticated and verified through the courts known as the probate process. A will is read in a county court and can be contested. There is no privacy with a will so if you don't want everyone to know who got what then using a trust is the way to go instead.
A big reason to have a will is to name guardians for your children along with a custodian for all the life insurance money you just left for them. In the case you do pass away without a will in place then the courts get to make all these decisions for you.
A power of attorney is a legal document that allows you (the principal) to appoint another person (the agent) to act on your behalf. You can specify in the document the powers you are appointing to your agent. You can give limited power like performing a single transaction on your behalf or you can give broad general power enabling your agent to do almost anything you can do.
Another important thing to remember is the power of attorney ceases at death. So if you are power of attorney for your elderly mom and she passes away you will no longer be able to act on her behalf. Obviously, you need to be very careful when deciding to give someone power of attorney. Personally, my wife and I are each other's power of attorney in case anything happened and we needed to act on the behalf of the other.
A health care proxy is a legal document that appoints an agent to make health care decisions on your behalf if you are no longer able to do so. It is not an easy job to be a health care proxy for another individual and it is a major responsibility. Make sure the person you appoint is comfortable speaking with doctors and asking questions. Most people imagine having to make the decision to pull the plug, but there are many big decisions that might have to be made before you ever get to that point. Make sure you have a very serious conversation with the person you appoint so there is no gray area and no emotional decisions being made if put in that position.
Hey, what's up everyone and welcome to the School of Personal Finance. My name is Rich McCormick.
In this video, we are going to be going over the basics of estate planning for all you wealthy
people out there. No, I'm just joking. This is estate planning for everyday people. Everybody
needs an estate plan. So I'm going to show you the six basic things that I think are important
in your estate plan. So before I get to the list of six things, I just want to say what estate
planning is. Because a lot of times you think of estate planning and you think of, you know,
the house up on the hill. You think of very wealthy people driving, you know, Bentleys and
they have, you know, millions and millions of dollars that they need to leave to people and
everybody's fighting, you know, going to the courthouse and fighting over who gets what.
But in reality, estate planning is for everybody. And no matter what your situation, you need some
type of estate planning, which is just planning for your death. As wonderful as that sounds,
it's just having everything in order in case you were to pass away where you don't leave everything
in shambles to the people that you leave behind. So step one is just to create a file with a list
of where all your crap is. So very simply, mine is called my in case I get hit by a bus file.
And my wife knows exactly where it is on the computer. So if something were to happen to me,
she could go pull up and see, you know, where our will is stored, where are the keys to our
safety deposit box, where do I have my 401ks, my IRAs, all of our brokerage accounts, all this stuff
that she really doesn't pay much attention to now because I handle it. And if something were
to happen to me, she just, you know, she'd have to put on her detective hat and try to figure out
where all this stuff is. So just to make things easier on her, I have a file listed out where she
can find everything, important people to contact, all of that kind of stuff in just one nice little
place where all she has to do is go click on it and be able to have all that information at her
fingertips. So it's an easy thing to do. And believe me, you know, you might not be here anymore
for them to thank you for it, but there'll be appreciative that you did that in case the worst
were to happen to you. So step number two, and now this one requires the help of an attorney,
or it doesn't require it, but I recommend that you use an attorney for it. And that's creating a will.
So a will basically lays out your final wishes. If the worst were to happen to you, what do you
want to happen? It lets the world know who you want to get what, who you want to take care of
your kids. It basically is a legal document that tells the world what you want to happen.
Now there is no privacy with a will. So if privacy is important to you, then the trust would be a
better option. A will goes through a court process called probate, and it's an open court. So anybody
could come and listen to what is laid out in the will. But in my opinion, the biggest reason to
have a will is if you have children. And if something happened to both you and your spouse
at the same time, then you want to be very clear on who is going to be the guardians of your
children. And obviously this is a conversation that you want to have with them before you name
them in your will as guardians of your children. You also want to be very clear on who the financial
custodian is for your children. Because if you pass away and your spouse passes away,
hopefully there is going to be a big pile of money, of life insurance that's going to be left
to take care of your children. And somebody has to be responsible for taking control of that money
and making sure that it's invested and that it's spent the way that you want it to be.
The third thing is a power of attorney document. Again, this is a document that you could find
online, but I recommend you just have an attorney do all these documents together for you.
But what a power of attorney does is you're able to appoint another individual to act on your
behalf if you are not able to. So this is if you are still alive, maybe you're incapacitated,
you're in the hospital, you're in a coma, and you want somebody else to be able to act on your
behalf. So this document, it appoints that individual to be able to do so. Now you can
have a very specific power of attorney for one item like for a real estate closing. But in this
instance, you want to have a general power of attorney. Typically you would have your spouse
be that power of attorney or a very close loved one where they would be able to act on your behalf
if you were not able to. And one important thing to remember with a power of attorney is that it
ceases upon death. So if you were to pass away in the hospital, the power of attorney is no
longer valid. So number four is a healthcare proxy. This is another legal document drawn up
by an attorney where you're appointing somebody to be able to make healthcare decisions on your
behalf if you are no longer able to do so. So this is a tough one. This is a big responsibility to
give somebody. So you want to make sure that you have a very serious conversation with them
about exactly what you want if you end up in this situation. A lot of people, they think of pulling
the plug, but there are a lot of smaller decisions that lead up to that point. So you want to make
sure that they know exactly how you feel about everything and what you would want them to do
for you in that situation. And it's difficult to have these conversations with doctors and to go
through this process. So you want to make sure that you choose somebody who is strong-minded
enough, who has confidence enough to have these conversations with the doctors and to ultimately
make the decision that you want at the end of it and not let their emotions kind of lead
the way. All right, number five is a simple one, but it's one where if you forget about it, it sucks.
And that's making sure your beneficiaries are up to date. So it's a simple task. Go through
your retirement accounts, your life insurance policies, and just make sure that you have the
beneficiaries on there. A lot of times people will start working right out of college and
they'll name one of their parents on their 401k plan at work. And then they get married and they
forget to change it. Or divorces happen and you hear horror stories about people who got
divorced, they're remarried, but they forgot to change the beneficiary in their life insurance policy
and their ex-spouse gets all the money. That stuff is real. When you pass away, they go by the name
that's written on those beneficiary forms, not what you have in your will or what they
think that you might've wanted. It doesn't matter. They're going by what's on that beneficiary form.
So just take the simple exercise of going through and making sure that all your beneficiaries are
exactly who you want them to be. And now number six is the hardest one. It's creating a video
to leave to your loved ones if something happens to you. So it's a strange thing to do,
to have a video conversation talking about how you're not here anymore and how much you
love somebody. But if that situation did come up, it would be great for your loved ones to
have a final video of you telling them how much you love them. And also just wrapping up any final
details or anything important that you would want them to know. You'll look back 40 years from now
and watch the video and get a good laugh from it. All right, so that's it everybody. Those are
the six things that I recommend every person do when it comes to estate planning. Hopefully that
was helpful. Please, if you haven't already, go to schoolofpersonalfinance.com, join my email list,
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