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Protect Loved Ones by Updating Your Estate Plan

May 6th, 2020 | 4 min. read

By Jacob Schroeder

Updating your estate plan

Protect Loved Ones - imageIf there is one silver lining of a crisis, it is the reorienting effect that reminds us of what matters most in life – our loved ones and our health. A crisis can also serve as a reminder of what we should do to protect them.

What happens to your spouse if you pass away? What about your children? If you have been asking these questions, then it is probably an indication you need to update your estate plan.

An estate plan designates who will receive your assets and manage your financial obligations after your death or incapacitation. What documents you need depends on the size of your estate and your situation. That includes where you live, as estate rules can vary by state.

Unlike managing your budget or investment portfolio, your estate plan does not require frequent monitoring. This makes it easy to ignore. But in the time since your plan was first established, your intentions may have changed. Life events, such as a marriage, divorce or new child, and new tax laws can upend your plan.

You cannot rely on just telling your family about your wishes. Instead, you must include them in your estate plan to make them legal.

Adults who do not update their estate documents will run the risk of having the wrong decisions made in their estate after their death. For example, if you get a divorce and pass away before your will is updated, your ex-spouse may be entitled to some of your assets. This could create an unnecessary emotional and financial toll on the family members handling your estate.

The good news is that there’s still time. Here are some key documents to start updating your estate plan.

Will

Reason to update: As most people know, a will is an essential document in that it specifies your wishes for when you pass away. It can help streamline the process as your estate moves through probate court, which can be a very time-consuming and expensive experience for your loved ones.

The probate process can take six months to more than two years, depending on the complexity of the estate, according to the Wisconsin State Bar. Unfortunately, few people have written a will much less updated one. Surveys from Caring.com found that only 32% of Americans have a will, a 25% decline since 2017.

A common reason people do not have a will is because they do not think they have enough assets to require one. A will is not just for wealthy or older individuals. It provides guidance for what happens to children if both parents pass away. And, it can help ensure assets are put in the hands of the right person, whether it is a bank account or stamp collection.

Beneficiaries

Reason to update: All the benefits you have earned and accumulated – pension plan, life insurance, 401(k) and IRA accounts, etc. – can be passed on to one or more beneficiaries after your death. These beneficiary designations override your will.

Ultimately, naming the wrong person(s) or failing to update your documents can create a mess for your heirs and leave your wishes unfulfilled. You could request that someone receive your IRA in your will, but the law requires that it go to whomever is listed as beneficiary on the account.

Living trust

Reason to update: A living trust is created while you are alive with instructions on how your assets will be managed by a trustee if you are incapacitated or pass away. Relationships can change, so you should review it periodically to ensure you still want to keep the same person as the trustee.

A trust passes outside of probate court, which can save time and money. So, it is an important estate document to have in your plan. It can be a way to help prevent beneficiaries from misusing the money you plan to hand down. Consider adding a successor trustee or a substitute trustee, and regularly check your trustee list to make sure it is up to date and accurate.

Living Will/Advance Health Care Directive

Reason to update: A living will, also known as an advance health care directive, details how you want to be cared for if you suffer from a medical emergency and wind up on life support.

A living will conveys your wishes when difficult decisions have to be made, such as whether you want doctors to do everything in their power to keep you alive or you give them permission to let you go if you’re incapacitated. The things that guide people in these decisions, including religious views and personal values, can change over time.

Financial Power of Attorney

Reason to update: A durable financial power of attorney gives someone the legal authority to help manage your assets in the event you are unable to properly handle them yourself. This document can prevent the probate court from having to appoint a conservator to handle your affairs.

Further, a durable financial power of attorney, who may access your financial information, could help monitor your finances and protect you from becoming a victim of financial fraud or scams. If it has been a few years since you established a power of attorney, make sure that individual is still the person you trust in the event you become incapacitated. You can always revoke it and name a new person to have that power on your behalf.

How a financial adviser can help with your estate plan

If you find any documents missing, talk to an estate planning attorney about updating your estate plan to fill in the gaps and protect your loved ones. Because your financial assets are involved, a financial adviser is also a valuable resource to ensure your wishes are fulfilled. Here are some of the ways a financial adviser can help with your estate plan:

  • Guide you through the pros and cons of each estate document in relation to your situation
  • Coordinate with your estate attorney
  • Help you establish a durable financial power of attorney
  • Work with you to update your investment and retirement account beneficiaries
  • Help you determine what type of trust is right for your financial situation and how best to fund with your assets
  • Work with your financial power of attorney to ensure your best interests are cared for if you become incapacitated

The best time to update your estate plan is before the time you need it. If you are fortunate to make it through a crisis unharmed, updating your estate plan will help ensure your loved ones are protected in the event things turn out differently during the next one.