The Fundamentals of Creating a Strong Estate Plan
By Amy Braun-Bostich, MSFP, CFP®, CFS®, APMA®, CLTC®
Estate planning is like going to the doctor—you know you should do it, but you keep finding a reason to put it off. You don’t have enough time, you’re still so young, or it’s just downright inconvenient. But just like going to the doctor, estate planning is necessary. And it’s significantly easier when you start early.
Daunting though it may seem, it doesn’t have to be complicated or stressful. Here are 7 critical components you can start thinking about today to ensure you are better prepared for tomorrow.
What Is an Estate Plan?
An estate plan is a collection of documents that should include, at a minimum:
- Last will and testament
- Guardianship designations
- Power of attorney
- Healthcare power of attorney
- Beneficiary designations
- Personal letter of intent
Together, these documents will outline your wishes should you die or become incapacitated; and if they are not in place, both you and your assets could be at the mercy of your state’s intestate laws. Though not mandatory, trusts are also important because they can be used to strengthen an estate plan and further protect assets as they pass from one person to another.
Last Will and Testament
A will is the most familiar of the estate planning documents. It spells out your final wishes and names a person or entity to handle your financial affairs upon death. A will is especially important if you have minor children. If you don’t specifically name a guardian in your will, the choice will be made by the court with no consideration for your preferences.
Despite many common misconceptions, wills are not just for the affluent. Everyone can benefit from having their financial affairs in order prior to death or incapacity. Without a properly drafted will in place, probate can cause unintended consequences and your assets may end up distributed to the wrong heirs.
It’s important to make sure that the language of the will does not contradict assets that are already set up to pass outside of the will.
For instance, imagine that a brother has already been named as a beneficiary on an insurance policy (an asset that usually passes outside of a will), but in your will, you bequeathed the insurance policy to a cousin. That is a major contradiction that can lead to a contested will and a potential legal battle.
Unfortunately, mistakes like these happen all too often, which is why proactive estate planning and periodic reviews of your documents are so important.
Trusts
Though wills are the most well-known estate planning vehicle, trusts are the true lynchpin. This is because they save both time and money by removing assets from your estate and avoiding probate. A trust operates as a separate entity that holds all your assets while you’re alive, thereby removing them from your personal estate. The trust’s assets will then be distributed to your beneficiaries in accordance with the terms of your trust document, which means your estate will avoid the hassle and expense of probate.
Trusts can be complicated, so it’s crucial to work with a qualified estate attorney to make sure your trust is properly drafted. Keep in mind that a trust and a will should work together. Though trusts cannot be contested, you still want to avoid contradictory language between the trust and the will to avoid unnecessary legal delays in administering the estate.
Guardianship Designations
Guardianship designations are usually included in either a will or a trust, but not always. It is an often overlooked clause that is critically important for those with minor children, or those considering having children.
Choosing a guardian is a delicate process, and you should make sure that whomever you choose is up for the role. This includes assessing their parenting style, opinions on important childcare topics, financial situation, and sincerity about looking after your children. Also, don’t forget to name a contingent, or backup guardian, just in case!
If these designations are not in place, a court could decree that your kids live with a family member you wouldn’t have approved or, in some cases, order that your children become wards of the State.
Healthcare Power of Attorney (HCPA)
The last thing you want is to leave your family in the dark regarding important medical information and how you want to be treated in the event of a medical emergency. If there are no documents in place, conflict can arise over who should make the decisions and what course of action should be taken. A healthcare power of attorney identifies a specific person who is authorized to make medical decisions on your behalf.
If you are considering an HCPA, be sure to select someone you trust, who shares your opinions, and is likely to endorse a course of action you agree with. Keep in mind that this person may literally have your life in their hands and it’s not a role to be taken lightly.
As with guardian designations, you should always name a backup in case the first selection is unable or unwilling to serve at the time.
Power of Attorney (POA)
This document covers everything else outside of medical rights. It allows an authorized individual to make decisions on your behalf, including financial, real estate, and business decisions. There are two main types to consider:
- Durable power of attorney: Your designated agent can make decisions on your behalf immediately upon signing the document. They also have the authority to make decisions if you become incapacitated.
- Springing power of attorney: Your designated agent only has authority to make decisions when a certain condition is met, like if you become incapacitated and can no longer make decisions for yourself.
The choice of which POA to use is highly personal and should be thoroughly reviewed. Make sure to involve whomever you choose to act as your designated agent. They should be well aware of the responsibility and willing to take on the role. If you decide you no longer want the POA in place, it is fully revocable as long as you are physically and mentally competent.
Beneficiary Designations
As mentioned, some assets will pass to heirs without being stipulated in the will. Retirement accounts and life insurance benefits are two common examples. For this reason, it is imperative to maintain both a primary and contingent beneficiary on these types of accounts.
In the event you do not name a beneficiary, or the beneficiary is deceased and there is no backup, a court may be left to decide what happens to your funds. Leaving this decision to a judge who knows nothing about your situation or beliefs often leads to a decision you would not have made. Avoid this pitfall by making sure your beneficiary designations are up to date on all accounts.
Letter of Intent (LOI)
A document you leave to your beneficiary or estate executor, an LOI is used to outline what you wish to be done with a particular asset upon your death or incapacitation. An LOI may also stipulate particulars of funeral arrangements, or other distinct requests that are not necessarily financial in nature.
While not a legally valid document, an LOI helps shed light on your unique wishes and helps a probate judge understand your intentions should your will be deemed invalid for any reason. Because it can be hard to know how a will, trust, or other estate planning document will be interpreted after you pass (or if they will be contested in the case of the will), having a combination of all these documents can help create a strong picture of your wishes. That way it is much more likely that your assets will pass according to your desires.
Do You Have Questions About Your Estate Plan?
Estate planning involves many intricate details and time-consuming tasks, but don’t let that prevent you from getting your affairs in order. At Braun-Bostich & Associates, we can walk you through the estate planning process and help you coordinate with a qualified estate attorney. If you have questions about your estate planning options, we would love to hear from you! Get started by scheduling a free 30-minute phone consultation or reaching out to us at amy@braun-bostich.com or 724.942.2639.
About Amy
Amy Braun-Bostich is founder, CEO, and private wealth advisor at Braun-Bostich & Associates, a fee-based fiduciary wealth management firm located in Canonsburg, PA. With over 30 years of experience, Amy is dedicated to serving her high-net-worth pre-retiree and retiree clients, helping them transform their wealth through customized strategies and top-notch services so they can achieve their goals and receive a new vision of what’s possible. With a goal of adding value to the lives she touches, Amy approaches each client with compassion and transparency and prioritizes building lifelong relationships.
Amy has invested countless hours into growing in her skills and knowledge to bring her clients the best advice possible for their situation. She earned a bachelor’s degree in psychology from UCLA, as well as a Master of Science in Financial Planning. She holds multiple certifications, including CERTIFIED FINANCIAL PLANNER™, Accredited Portfolio Management Advisor℠, Certified Fund Specialist®, and Certification for Long-Term Care. She was named one of Pennsylvania’s Top Women Wealth Advisors in Forbes’ 2022 Best-In-State list. When she’s not helping her clients find clarity and purpose, you can find Amy reading, going on walks, and gardening. She loves to travel and spend time with her family, including her husband, two children, and her dog. To learn more about Amy, connect with her on LinkedIn.
