A comprehensive estate plan addresses many of the events and challenges that take place during one's lifetime. Estate planning, meanwhile, remains a tough topic for people to consider and often is misunderstood as strictly dealing with issues involving death and wealth distribution.
Estate planning continues to get a bum rap.
For many people, it's a low priority and depressing duty reserved for the old and dying. It's an undertaking only for the rich, they wrongly reason. They'd prefer to avoid the subject.
In truth, estate planning is a lifetime process of being prepared for life. It's about asserting control - in advance - of events that happen as life goes on. Despite its doom-and-gloom reputation, planning is much more about you while you're living and how you wish to impact the lives of others.
The world of estate planning, its reputation notwithstanding, can be a happy place. It can soothe the sting of unforeseen events and eliminate the need to force loved ones to make difficult decisions on your behalf. By planning for your life, you can control decisions about your health care and finances ahead of time in case an accident, illness or tragedy leads to your incapacity or untimely demise. Those well-planned decisions can remove the agony of uncertainty, burdens on family and lack of control in times of a health crisis or loss of a loved one.
Indeed, the notion that estate planning is death-centric is a doomed proposition, experts agree.
“Gone are the days of planning for your death. It's time to plan for your life,” says attorney and Forbes contributor Daniel Scott. “Rather than have a legal framework to protect and distribute your assets at death, you need a legal framework that propels you toward achieving your greatest success and living a happy, fulfilled life,” Scott says. “Instead of focusing on death, we need to focus on life and to view our jobs as advisers who navigate the legal road toward your happiness and human fulfillment. Otherwise, what's the point?”
For bizjournals.com contributor Denise Bendele, a better term for estate planning is “lifetime planning.”
“Every day, thousands of people have unexpected accidents or health events. And death is not the only potential outcome,” Bendele says. “What if you survive? What if you are in a coma or are incapacitated? Can funds be accessed to ensure your bills are paid and your family fed? Can income tax returns be filed? Will your businesses continue to operate uninterrupted? Failure to plan can result in expensive and unintended consequences.”
Fear, however, leads to procrastination, according to a recent Caring.com survey on estate planning.
“Planning for a possible tragedy is an uncomfortable process that forces people to answer some tough questions,” Caring.com reports. Nearly a third of respondents believe that planning documents are needed only “for those with substantial wealth or complex finances.”
The survey found that 60% of adults in America lack a simple last will and testament, and only 36% of parents with children under age 18 have one. A will, which is just one of several recommended planning documents, has two primary functions (distributing assets and nominating guardians of minor children) and does nothing to address life events.
“It's only unimportant until you need it, and then it's too late because you don't have it,” Penny Vance, fiduciary managing director at PNC Wealth Management, told Forbes.
Think of a lack of planning as distressing, not depressing, says Simple Money author and financial planner Tim Maurer.
“We avoid the discussion because it involves a topic we'd rather not consider, but while the probability of your imminent passing is low, the damage done from a lack of estate planning is so significant that it demands our immediate attention,” Maurer told CNBC.
Have you planned for life?
Fear may cause procrastination, but it's also a factor that might motivate people to engage in life and estate planning.
Experts say there are four planning documents, at minimum, every adult should have in place: a will, an advance directive for health care, a health care power of attorney and a financial power of attorney. Those legal documents give your self-appointed representatives the authority to follow your instructions and act on your behalf regarding medical treatment, guardianship, care of minor children and management of your finances if you become incapacitated or terminally ill.
It also can be frightening to know that a mystery person or institution, appointed by a judge in a so-called “living probate” proceeding, could be empowered to make intimate health care and financial decisions on your behalf. Those who lack planning documents - such as powers of attorney or revocable living trusts that set forth their wishes in lieu of a judge's orders - put themselves at risk of being placed under a court-imposed guardianship if they become incapacitated.
Failure to plan can leave the decision of guardianship in the hands of a stranger who doesn't know you, your intentions or your family. In many well-documented cases, a lack of planning has led to the nightmare of unscrupulous guardians having total control over an individual's most basic day-to-day freedoms. The guardian, not the ward, has final say on all matters from food and clothing choices to spending money and visiting family and friends.
While lack of control is one negative aspect about living probate, lack of privacy is another major disadvantage of the process. Guardianship proceedings are a matter of public record in which details about your assets and medical condition are available for anyone to see, including nosy neighbors, meddling outsiders and financial predators.
A revocable living trust is another way to ensure that you or your representative manage your assets, not an unknown agent of the probate court. Trusts have many purposes. One is to control and safeguard property and assets during your lifetime. As owner and grantor of a living trust, you appoint one or more successor trustees to seamlessly manage the assets of the trust on your behalf - according to your detailed instructions - in the event of your incapacitation or demise. Your trust and power of attorney instructions can be as specific as necessary to give you control over how your assets are used for your livingarrangements, health care and other needs.
Those who lack even a simple last will and testament should dread a lack of control that looms in their future. The assets of those who die without a will are distributed under state intestacy laws based on a predetermined hierarchy of blood relatives. A court - not you - decides who administers the estate and who gets what. Your legacy is determined by state law, not your own personal liberty or preferences.
When should I update my estate plan?
Estate planning has a lifecycle of its own. Planning documents need to reflect changes in life as time goes on. Legal paperwork and other documents should be reviewed regularly and adjusted.
Whenever there's a change in the family dynamic or a major life event, plans need to be updated, emphasizes Kansas-based estate planning attorney Kyle Krull. “Consequently, you should regard your life and estate plan as a lifetime process, not as a one-and-done event.”
Here are 10 common changes in life or activities that Krull says could necessitate revisions of planning documents:
- Marriage remarriage or divorce
- Death of a spouse
- A substantial change in estate size
- Death or incapacity of an executor, trustee or guardian
- Move to another state
- Acquisition of property in another state
- Birth or adoption of a child or grandchild
- Change in beneficiary attitudes
- Change in insurability for life insurance
- Financial irresponsibility of a child
“Life and estate planning is about much more than an after-death plan for the distribution of your earthly things,” Krull advises. Instead, he says, your focus should be planning to protect yourself, your loved ones and your assets “whether you are healthy, incapacitated or deceased.”