Planning for future events is a part of life. Whether it’s buying a car, getting ready for a trip or having a child, these things impact your life in ways you can never completely anticipate. However, there are things you can do to help prepare you for the journey.
When it comes to your finances, there are all sorts of plans out there, but one worth considering is an estate plan. They can take many forms – from simple to complex – and aren’t only for the elderly or ultra wealthy. There are a few simple tasks that you can take to help you navigate the process and support your vision.
Choosing an Attorney
Bend has many qualified estate planning attorneys. Your job is to find the one who will help you avoid probate and possibly lower your tax bill, and who will also guide you through the very personal process of identifying and meeting your goals. Get recommendations from your friends, co-workers and financial advisors. Make sure he or she is open to answering all of your questions in plain English. Empathy is important – after all, your attorney will likely be dealing with your family at a very difficult time.
It’s generally best not to solely rely on a do-it-yourself book or software package. Estate planning can be extremely complex and full of the potential for unintended consequences. A skilled attorney will know how to circumvent these problems, creating a flexible document that reflects your wishes. This is not the time to pinch pennies.
Start with a Will
All too often, people don’t create a will. For practical purposes, this means that their state will dictate what happens to their assets and property. This may be fine for some. But unfortunately, all too often assets wind up in the hands of an estranged spouse or relative simply because there wasn’t a will.
A will is especially important for every parent, even if you don’t have many assets. The moment you have a child you absolutely need a will to specify a guardian in the event something happens to you or the other parent. Selecting the right person can be tough; don’t hesitate to use your attorney as a sounding board – especially if there is a difference of opinion between parents.
But Don’t Stop There
A will is a great beginning – but there are a couple of big issues it won’t touch: probate and taxes.
Probate may be required when assets are registered only in the name of the person who has died. So whether it’s your house or your bank account or your car – your property may have to go through this lengthy, costly and public process unless you have made other arrangements.
The most common ways to avoid probate are trusts (revocable living trusts often being the most appropriate), designating beneficiaries on retirement accounts and insurance polices, setting up pay-on-death accounts for bank accounts and certain government securities and titling property as joint tenancy. Your attorney will guide you through the appropriate choices. A word of caution: Every financial professional has heard stories of accounts going to an ex-spouse because the beneficiary forms were out of date.
A common misperception is that if you avoid probate, your estate also avoids taxes. Not so. If taxes are an issue for you, your attorney may recommend a combination of trusts that will help you direct more of your estate to your intended beneficiaries.
Create an Advanced Health Care Directive and Durable Power of Attorney
We all need an advanced health care directive to let our doctors, family and friends know our wishes about emergency and end-of-life care. A very tough subject, for sure, but a necessary consideration unless you want someone else to decide for you.
Similarly, a durable power of attorney will give a trusted person authority to act on your behalf and handle your finances if you are incapacitated.
Discuss Your Choices
Once you have created your plan, talk to your family and other beneficiaries about your choices. By doing so, you can protect them from surprises later on – especially important if your decisions differ from what they might expect. And perhaps even more important, it will allow you to share your vision for the legacy you want to leave behind. Make the best decisions for the present, and then plan to revisit your choices every few years.
Your focus should be on making sure that your estate plan reflects your values and supports the legacy you want to leave. Never make any estate planning decisions based solely on taxes and even if you have significant wealth, be very careful about not letting your generosity compromise your financial security. Finally, make sure that you work with an experienced team. In addition to your financial advisor, be sure to hire an experienced estate planning attorney who is up to date on the latest regulations, and able to create a flexible plan that truly reflects your wishes.
The information herein is not intended as specific, individualized, legal or tax advice. Please consult a qualified CPA or attorney on such matters.
Luiz Soutomaior is a Certified Financial Planner, Certified Fund Specialist with Charles Schwab & Co., Inc. (Member SIPC). He is located in the Bend, Oregon office at 777 NW Wall Street Suite #201 and can be reached at 541-318-1794 and Luiz.Soutomaior@schwab.com.
