Whether your total economic wealth is non-existent, small, medium or large you need to plan for the future. It is easy to believe that if you have no assets or insubstantial assets that it is not necessary to make an estate plan. Many middle class and marginally wealthy people put off estate planning, thinking they have plenty of time to take care of such matter, or believing that someone in their family will carry out their wishes. Skimping on planning now could cause great distress and difficulty for your family and friends later on. In this article, we will talk about why estate planning is important for everyone.
Estate planning is not only about distributing finances and/or property, it also encompasses details such as health care directives, final arrangements, funeral expenses, organ donation decisions, whether or not to invest in life insurance, proper document storage and assigning guardianship of minor child(ren). These are all issues that should be addressed as soon as possible in one's life. This article will cover these important issues as they pertain to everyone, no matter what their financial status is.
Guardianship of Minor Children
While the odds are very slim, the fact is that there is a chance that you may not be around to raise your minor children. This is a difficult thought to consider, however, it will give you peace of mind to know that in the unlikely event this situation occurs, your children will be safe, cared for and with those you trust. It is assumed by the courts that in the event of the untimely death of one parent that the surviving parent will take custody of the child or children. Even if you are estranged from the other parent, it is assumed custody would go to the surviving parent. It is very important to clearly designate who should take custody of your minor children in the event both parents are no longer able to raise them.
If you are divorced, separated or otherwise estranged from your children's other parent and this person is unfit or dangerous to the welfare of your children, you may need to make provisions to keep that parent from obtaining custody of the minor child(ren). In this case, be sure to hire an attorney and have them clearly indicate in your guardianship directive why the other parent is unfit to raise the children in your absence. Do not set this type of directive up out of spite, anger or frustration with the absent parent as this would only cause more pain and suffering to your children. Also, it is unlikely a court will honor such a directive without some type of proof of your claims. If the other parent obviously cares for the children and can show the court that they are capable of caring for them in a healthy manner, they will be given custody preference over other family members and/or friends. These types of directives should only be created if the absent parent is dangerous or unfit.
If you are a widow or widower or an unmarried gay couple who loses a partner to death, this process becomes more complicated; you need to consider your options carefully. If you are in an unmarried gay union, (depending on the state in which you live) you should be sure to create a solid, legal directive giving custody to your partner so that family members cannot interfere or usurp your final wishes. If you are already a widow or widower, you need to select a trusted person to raise your child or children in your absence. This person may or may not be a family member. If you do not want your children ending up with family members you feel are unfit from either side of their family tree, you need to be clear about exactly who should care for them and put this in writing, preferably with an attorney present. You should be sure to ask the person or couple who you would like to care for your children if they are able and willing to do so. It could be difficult for your children if the person you designated had to refuse. It is helpful to have a secondary guardian in the event circumstances change and the first chosen guardian cannot care for your children. Be sure to have the secondary person's permission as well. Be sure to give them original copies of the directive with pen signatures not copied signatures.
You may also want to put this same person in charge of the assets left for your minor children so that they may have funds necessary for their care and upbringing. If you feel strongly about certain aspects of their upbringing, be sure to include these concerns with your directive and to discuss them with the person you are trusting with your children.
Health Care Directives
Many people ignore this important aspect of estate planning because they imagine they are only necessary in very old age. However, health care directives are necessary in the event of an accident, unexpected illness or terminal illness. If the idea of leaving your medical decisions to others in the event you cannot convey them concerns you, then you need to have a solid health care directive. You do not have to be wealthy or even have any assets to have a health care directive. If you do not prepare clear instructions about your wishes, these decisions may be made by estranged relatives or judges, who have no idea what your wishes are.
The two aspects of the health care directive are the living will and the power of attorney for health care. The first, the living will, is essentially the written form of your health care wishes; this document literary spells out the details of your health care preferences. You should specify any and all health care wishes in this document. A living will has nothing to do with your last will and testament. The second part of the health care directive, the power of attorney for health care, (also called a durable power of attorney for health care) is a document that clearly names the person you designate to make health care decisions if you cannot. This person should be someone you trust; they may be a spouse, other relative, friend or an attorney. The health care power of attorney may also be called the health care "proxy," or "surrogate." In some states these two documents are combined and called the "advance directive." If you want to be absolutely sure that your wishes are carried out, then you should have both a living will and a health care power of attorney.
To ease the process for your loved ones after you are gone, it is wise to pre-plan your final arrangements. For many this is more difficult than any other aspect of estate planning, but not planning for this in advance may result in your final wishes not being carried out; it may also add emotionally, financial and mental burden to the shoulders of your loved ones during their difficult grieving period. Many people feel that it is enough to "tell" a friend or loved one what their final wishes are. Many movies portray the scenario wherein a trusted friend or loved one conquers all obstacles so that they may sprinkle their loved one's ashes over the ocean or off a mountainside. Unfortunately, without a written statement that has been signed and notarized by you, your friend or loved one would probably be blocked from carrying out your final wishes. So, if you want to be cremated or buried or encrypted, and/or if you would like to donate your organs (or not), then you should clearly state this in a written document that is notarized before a witness. Likewise if you want your ashes to be placed in a particular area, then this should also be included in your document. Keep legalities in mind when doing this, some local laws restrict the sprinkling of ashes in particular areas.
Funeral Arrangements and Expenses
There are several ways to be sure that your funeral expenses and/or arrangements are covered in advance. You can create a savings account specifically for that expense, you may go to a funeral home of preference and arrange to have your arrangements paid and specified in advance, you may set up a "do-it-yourself" funeral, or you may join a memorial society. Let's take a look at each of these.
Funeral Savings account: As with any type of life event, you can create a savings account to cover your final expenses. Each week, month or paycheck, you can put away a designated amount in an account that you can specify is for your final expenses. An advantage of this is that you can save a little at a time rather than pay a large lump sum. A disadvantage of this method is that the money may not be used in the way you plan unless you leave a clear directive as to how the money should be used. You may use this method to save enough to later go to a funeral home and set up a pre-arranged funeral. Be sure that you are saving enough money for the future by taking into consideration inflation and increasing funeral expenses. A funeral may cost $10,000.00 in 2008 but in 2028 it may cost double that figure. Remember also to consider what your desires are while saving. Are your desires simple or extravagant? Keep these things in mind so that your family is not surprised or burdened with paying for expenses they did not plan on.
Join a Memorial Society: Memorial societies are groups of citizens who join together to plan for the funeral directives of themselves and their families. Each state (with the exception of six states) has its own or shares with another state its own non-profit group. These groups are not to be confused with memorial groups or organizations for undertakers. Memorial societies or groups are non-profit, offer advice, planning and alternative solutions to traditional burials and the high cost of traditional burials. They work with local funeral directors and funeral homes to get basic, reasonably priced advance burial and cremation as well as aid in alternative burials. Those who survive you will simply contact the pre-selected director at the time of death. From there they will initiate the plan as directed; death certificates will be provided. In some cases the funeral directors fee is payable at the time the services are rendered. Members are informed each year of the funeral directors current fees. In other cases, the fee is paid in advance. In order to be involved in this type of funeral you must be a member of the memorial society in your state.
Funeral Home Advance Set-Up: Most funeral homes offer an advance, pre-paid funeral package. Many also offer "funeral insurance." Funeral insurance is similar to life insurance in that you pay a monthly premium and when the time comes your family will be able to redeem the policy to cover your selected funeral arrangements. Before signing a contract for this type of policy be sure to investigate the company issuing the policy for the funeral home carefully. There has been several instances in past years of funeral insurance companies not having the funds to cover the prices of funerals pre-paid many years prior. If you or a family member has a plan and signed a contract for a pre-paid funeral, do not allow the funeral home to tack on extra fees for "increased cost." You paid for a specific funeral in advance regardless of what the cost would be when redeemed, thus, the funeral home that sold the policy has to honor the agreement, much the way a life insurance company would have to honor the cash out they agreed to when you signed their contract.
Do-It-Yourself or Alternative Funerals: The Funeral Consumers Alliance is a non-profit group that provides current, timely information on cost and care of the dead. They provide pamphlets, advice and support to consumers who need more information about funerals. This organization also offers an excellent end of life planning kit for $12.00 which includes a state specific living will and other health care directives. You can order it from their Web site. Alternative or at home funerals are becoming as popular as home births have become in the 21st century. While some find it unusual or strange, many others feel it is a more personal way to care for loved ones. Home wakes and burials were very common right up to the early 20th century. After the 1930's most people in the US started turning to funeral homes to take care of this task. Burying your dead rather than incurring the expense and enduring the impersonality of funeral homes is a deeply personal choice that should be considered carefully and discussed with family members.
Organ Donation Decisions
Another important decision that should be planned for in advance is whether or not you would want your organs donated should the situation arise. Most states provide an "organ donor" check box on the back of the driver's license. If you check this box or instruct the motor vehicle worker to answer yes to this question, if you are involved in an accident, the authorities on the scene will be able to quickly respond to your donation and alert hospital personal. It is wise to also have this directive included in your living will or in a separate document. Likewise, if you do not wish your organs to be donated, then you should be sure to check No for organ donation on your driver's license and or add your wishes to your living will.
Most people under thirty or forty don't believe that they need a life insurance policy. They feel that as long as they continue to work, save and invest, that they will have enough to retire on, however, if you have dependents that are relying on you for their care you should have a life insurance policy. If you have a family with dependent children at home, do not have a large amount of assets, and or have a debt in the form of a mortgage, car payments, loans or revolving credit then it is advisable that you secure a life insurance policy as soon as possible. For young families whose children need to be cared for until adulthood this is very important. Insurance policies come in many forms and you should shop around to various companies and research the many offerings before deciding upon a plan. Stick with a reliable, long standing company, even if their premiums are a bit higher. With older companies you don't have to worry about their not honoring a policy or of them not guaranteeing a policy in the future.
Term life insurance is also called "temporary" insurance. It is used to cover you for a specified period of time. For instance, if you have a spouse and children, you may want to go with a ten to twenty year term policy to pay off your mortgage in the event of your death. These policies are generally cheaper (have lower premiums) than other types and are perfect for younger couples and new families. The next type is lifetime term insurance. These polices cost more but cover you on into your later years. Lastly, there is Whole Life insurance. These policies are more expensive then any term plan, but include an investment component. According to the terms, you can usually borrow on your policy after a certain amount of years. In this regard Whole Life insurance serves to protect your family now and in the future and also acts as a type of savings and retirement plan. Speak with a reputable agent to learn about all your options and the types of policies there are.
The rule of thumb is to get a policy with a pay out high enough to cover prevalent expenses such as funeral, mortgage and other debt, but do not make the premium (monthly payment) so high that you lapse (fall behind) in your payments. Most companies offer a reasonable grace period for lapses, but many others do not. If you lapse, you will lose all you have paid in no matter how long you've been paying, and you will lose the policy as well. On the other hand, if you keep up with your payments devotedly, you will have the piece of mind of knowing that your family will be cared for in the event of your unexpected death. Even if you have assets and investments, an insurance policy is a good idea if you have minor children. Be sure to name a primary and secondary beneficiary and to update that information in the event of life changes such as divorce, marriage, or death. Many people work for companies who provide a life insurance policy as part of a benefits package. While these are useful, you should not rely on them to financially aid your family if you die. Most have very low payouts, just enough to cover funeral expenses in most cases. Thus, if you have a policy with work, ask about beefing it up by paying extra out of your paycheck or take another private policy on your own in addition.
Be sure your loved ones know about any policies you have and where to find them if necessary. (See the next section for more information on this).
It cannot be stressed enough that you need to have your documents in proper order at all times. It is almost a contradiction to go through the trouble of creating a solid estate plan only to mis-place your will, health care directive, insurance policy or other important documents! There are several means of storing your documents carefully. The best is to purchase a box, container or safe that is waterproof, fireproof and lockable. Give the keys or combination only to those you trust completely. Another alternative is to keep your documents in a safe deposit box at your bank. In a pinch you can place documents in a large, closable envelope and place them in a drawer, desk, file cabinet or other safe place until you can obtain a more suitable container. Strong boxes or fire and water proof document safes can be purchased at most office supply stores. Small boxes can be purchased for under fifty dollars and they are well worth the investment.
You should also provide copies of your important documents to a trusted loved one who do not live with you to be sure a copy of last written wills and directives exist. Be sure to have these copies notarized and that they contain an original signature or they may be deemed invalid by estranged relatives, courts or others. If you travel often, are single or are in the military, giving a signed copy to a trusted third person becomes particularly important. Once you have obtained a secure lock box, safe or document safe, be sure to place the following in them and put it in a permanent location that can easily be found by your loved ones.
Types of Documents to store in a document safe:
- Original (raised seal) birth certificates of all family members
- Original (raised seal) marriage certificate
- Original death certificates
- Divorce papers
- Child custody papers
- All Insurance policies
- Property deeds and other property ownership documents, such as surveys, title insurance, homeowners insurance, etc.
- Vehicle titles
- Most current Last will and testament
- Living will
- Health care directive
- Guardianship directive
- Powers of attorney (all types)
- Social security cards (never carry your original ss card with you, rather, carry a copy)
- Name and address of attorney
- Safe deposit box records and keys
- Extra car keys
- Copies of driver's licenses (front and back)
- Copies of credit cards (front and back)
- Immunization records
- Any other important document that would be difficult to replace
- Copies of any important items that would make life easier if lost
If you have updated any of these documents, be sure to dispose of the old versions by shredding or tearing completely. Keep only the most current versions of documents. There is no need to keep old versions of wills and directives; this will only serve to confuse those who survive you.
A Brief Word about Pet Guardianship Designation
Some people may find that this type of designation is insubstantial or frivolous, however, it is important to keep in mind that for many people their pets are trusted, loved companions. For still others, pets are as important to them as a child would be. It is not uncommon for people to make provisions for their pets in their estate plan. If your pets are important to you, then you need to create a guardianship designation for them. Be sure to specifically spell out who you would like to care for them if they survive you. Be sure to ask the intended person if they are willing and able to take on this task. If you plan on leaving assets to your pet so that the guardian can properly care for them, then be sure to also select that person as executor of the assets. If there are specific directions or wishes you have for their health and living care, be sure to include this with the directive. It is wise to have a back-up or secondary guardian in the event something changes and your first choice can no longer care for your pet(s).