How to create an estate plan: The best way to plan for the worst

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No one wants to think about how their loved ones are coping with death, but it’s important to plan effectively to ensure a smooth transition of your wealth and worldly possessions – even if you’re young or feel like you don’t have much have to leave behind.

An estate plan is a set of legally binding documents that ensures you have control over what happens to you, your assets, and your loved ones if you become disabled or die. The plan can include a will, power of attorney forms, trusts, and more.

“Having an estate plan is like carrying an umbrella for the inevitable rainy day,” said Mary Elizabeth Anderson, a partner at the law firm of Wyatt, Tarrant & Combs LLP in Louisville, Kentucky.

The most well-known will is called a last will and testament, which is a written statement about who should receive a deceased person’s estate, Anderson said. It may also include who will take on guardianship of dependents or pets.

Assets can include items as diverse as real estate, cars, and family heirlooms.

In the United States, requirements for a will to be valid vary from state to state, and you should consult an attorney to ensure your will is legally binding.

Without a will, state laws govern who receives your assets and may not carry out a person’s intentions, Anderson added. This could result in a long, headache-inducing process for family members in court.

Paige Hardin-O’Brien, 32, drew up an estate plan three years ago and made sure to include some valuable vintage furniture in her will. She is an embryologist at the Kentucky Fertility Institute in Louisville and one of Anderson’s clients.

Hardin-O’Brien has also been careful to state her medical wishes for end-of-life care, information typically included in a living will. Unlike a final will, this legal document outlines plans for your lifetime. There are instructions on how you would like medical attention if you are unable to speak for yourself in the event of a life-threatening emergency and other serious medical scenarios.

As a registered organ donor, she also included a medical clause stating that she would like her organs donated when she dies.

While a living will states your medical preferences, healthcare power of attorney forms grant someone else permission to make decisions on your behalf when you are unable to do so, said Ray Prather, a partner at Chicago law firm Prather Ebner LLP.

Hardin-O’Brien designated her mother to decide if or when to remove her life support should such a medical crisis arise.

“I’m married, but I didn’t give (my husband) permission to say yes or no because he would literally keep me alive forever,” she said.

Financial power of attorney forms, meanwhile, appoint someone to oversee your property, access your bank accounts and manage your finances if you can’t do it yourself, Prather said.

Trusts are another important part of an estate plan. They are an agreement to hold assets for the benefit of another person, Anderson said.

They can be particularly useful for adults who want to pass wealth on to children under the age of 18.

Victoria Fuller, 32, set up a trust after finding out she was pregnant to ensure her assets are properly allocated in the event both she and her husband die while their children are minors. She is an associate at Wyatt, Tarrant & Combs LLP and also a client of Anderson.

Without a trust, their children would likely inherit all the money at once, Fuller said.

However, minors generally cannot own assets such as real estate, so any relevant property must be held by an adult or third-party entity until they can legally inherit it, Anderson said.

Fuller’s trust would give money to her children in smaller payments as needed to ensure it isn’t used up before they grow up. When her kids turn 18, they’ll have more access to the money, she explained.

Other parents prefer to wait until their child is more mature — say, between 25 and 30 — to give them access to their wealth, Anderson said.

There are other ways than trusts for adults to manage their assets in relation to minor children. Anderson recommended that parents or guardians speak with an attorney to determine the best option for you.

With all this legal jargon, it can be overwhelming to know exactly when and how to begin the process.

Life events — like turning 18 and going to college, getting married, changing careers, or moving states — often trigger estate planning, Anderson said. Pregnancy is also a popular time to start the process, as in Fuller’s case.

Estate planning can be complicated, so it’s okay to seek help from trusted professionals who can navigate technical areas that could drastically alter plan outcomes, Anderson said.

Prather recommended that anyone preparing an estate plan work with a reputable attorney to ensure their documents are legally correct.

In addition to updating her plan after a major life change, he suggested meeting with her attorney every three to five years, regardless of her circumstances, to review her plan.

“Just because nothing in your life has changed in those three to five years doesn’t mean the law hasn’t changed,” Prather said.

The price of creating an estate plan varies widely depending on the complexity of the plan, how much the attorney is asking and what city it’s in, he said.

Prather’s fixed fees are billed by the hour, and his typical estate plan costs between $2,000 and $3,000. However, it’s located in Chicago, which could make the process more expensive than other smaller cities, he noted.

Although the price may be high, it’s a good investment because it ensures that everything you’ve worked so hard for in life is properly taken care of when you’re gone, Hardin-O’Brien said.

“You go to a job to buy all these things or put money into a house and then you die and it all goes away,” she said.

Hardin-O’Brien’s plan took only a few weeks to draft, and the process was very simple, she said.

It can be intimidating to jump into planning because you feel you need a plan already laid out, but the attorney will work with you every step of the way, Fuller said.

Knowing that all is well with her children, Fuller’s estate plan gives her peace of mind.

“I want to make sure they’re in good hands and that they’ll be well taken care of and supported after I’m gone,” she said.

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