Hope For The Best, Prepare For The Worst
There is an old saying out there that says, "hope for the best, prepare for the worst." And what's the worst? Dying is the worst. Unless...suffering; suffering is the worst. Whatever the worst is for you, do you have a plan for it?
Estate Planning
Estate planning is, well, planning your estate. Sounds simple enough, right? It's not always that easy, though. There are many options, and each of those options has different pros and cons. And, let's be honest, nobody likes talking about their own demise or the demise of their spouse. Sometimes worse, if a loved one comes to us and want to talk about their death, we clam up because we don't want to think about life with him or her.
It's very necessary, though, because bad things can happen without planning. I've heard many stories of a person who forgot to change the beneficiary designation on their retirement account and their ex-spouse inherited it. I've heard stories about someone in a second marriage and both of the new spouses had children from a previous relationship. When the first spouse died everything transferred to the second spouse. When the second spouse died, everything transferred to the second spouse's kids, leaving the children from the first to die with nothing - probably not what was intended.
I want to highlight some of the major documents I hope you have, and if you don't, I hope you consider creating them.
Beneficiary Designations
A beneficiary designation is a designed beneficiary on a certain account. Let me rephrase that in English. Some accounts, like retirement accounts, health savings accounts, or college savings plans, or insurance policies, like life insurance or annuities, let you pick who gets the account after you die. You do this by choosing your beneficiaries, which simply means the person who benefits.
It's VERY important to understand that (forgive the jargon for a second) these accounts and policies aren't part of the probate process. Basically this means that no matter what you say in your will, for example "every single thing that I own will go to my favorite blogger, Derek," doesn't matter with an account or policy that has a beneficiary designation. Using the example of the ex-spouse above, if you choose to leave everything you own to your new spouse in your will, but forgot to change the beneficiary designation from your first spouse, then your first spouse will get a surprise gift from you.
Will
When thinking about planning for what happens after we die, most people go straight to the will. It's such a popular document that many people equate all of estate planning with having a will. "I have a will, so I'm good," they'll say.
A will is a legal document that outlines what happens to your assets (those that don't have beneficiary designations) when you die. In a nutshell, this is the document you can use to say that your house goes to this person, your vintage car goes to that person, and your stamp collection gets donated to your favorite charity.
Trusts
What about trusts? Some people have heard about trusts and everyone know about those "trust fund babies," though, admittedly, most people misunderstand them. Some people set up a trust and transfer their assets to the trust. A trust is a separate entity, much like a company is a separate entity. I could write a whole book about trusts so this will be very high level (by that I of course mean that someone could write a whole book about trusts - not me). Trusts are very complex - there are many kinds and most of them are very flexible.
For our purposes here, I'll simply say that trusts aren't subject to the same probate process as accounts with beneficiary designations (probate is a process the state uses to determine who gets what, and it's public). Some people use them to set up rules for how the money can be used or when. So when you hear about a "trust fund baby" that usually just means they got money in trust instead of getting the money outright.
What About Kids?
A will has more benefit that just dictating to whom your assets go. It also dictate who will look over your minor children. If you think about this for a fraction of a second you'll realize that not having a will with minor children could be disastrous. The state will decide who gets guardianship and they may not choose who you would have. And you can avoid the probable battle between your and your spouse's parents if the two of you were to die at the same time by just having the conversations ahead of time.
Another point to make about kids, is what do you want your kids to do with the money? Again, if you and your spouse die at the same time with minor kids and you have everything going to your children, the courts will decide whether they should get the money or who will watch over it until they get to the age of majority (age 18, 21, or 25...depending on your state). Assuming everything goes okay with that, your children will get your money outright at age 18, 21, or 25. Maybe giving them a lump sum isn't quite in their best interest. In this case, thinking about a trust might make the most sense (of course, some of your money could be left to the guardian instead, to help with the costs of raising your children).
Financial Power of Attorney
That was depressing; enough about death. Now we have to talk about what happens if something happens to you and you can't make decisions for yourself anymore - still uncomfortable to talk about, I know, but still necessary. A financial power of attorney is someone you trust to step in and make decisions for your about your money in case you can't. Obviously, this needs to be someone you trust and you should have a few conversations about your goals and wishes.
Healthcare Directives
Similar to making decisions about money if you can't, healthcare directives are important for making decisions about end of life treatment for you in the event that you can't make decisions for yourself. There is no right or wrong answer here, just your wishes. For example, do you want to be kept alive for as long possible hoping for a cure to be developed? Do you want to be taken off life support as soon as possible to save money for your funeral or your heirs? Under what conditions do you want to be taken off life support? These are important questions to ask and they will not be properly answered by your family members in the extreme emotional and stressful situation of you being in the hospital.
There are a couple different ways to consider directing your end of life care. Keep in mind, many of these have different names depending on where you are.
Living Will - A living will is basically a legal document that outlines the different situations in which you need to make a decision, like when to be taken off life support, when you want to be necessitated, or whether your organs should be donated. In addition, this can include whether you want dialysis, to be fed from a tube, if you want your body donated, or when to go to comfort care.
Healthcare Agent - Designating a healthcare agent is much like a financial power of attorney, but for health decisions. So if you haven't explicitly explained your wishes or if there is a situation you didn't think of, the person you designate has the legal right to make this decision on your behalf.
It's Important
This is very, very important stuff. I know how hard it is to think about this kind of stuff. I know what kinds of emotions come up when having these conversations. Have the conversations anyway. You can't afford not to.
Special Note
I don't think I need to say this, but I will anyway; don't take legal advice from a blogger guy who draws elementary-level sketches. If anything you read here hit home, make it a point to talk to your estate planning attorney or financial planner, or at least use some of these questions to guide you when you create your documents.
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