Who needs estate planning?
With the recent passage of the $5 million estate tax exclusion, many people believe that they need nothing other than a simple will to cover their estate planning requirements. Estate planning deals with providing for ourselves as we age and taking care of our loved ones after we are gone.
Did you know that important estate planning issues begin when you (or your oldest child) turn age 18? Here are a few estate planning tips that could save you and your family from potential future angst.
1. In most states, including Colorado, parents no longer have legal authority to make health care decisions or to manage money for their children who are 18. While children may still be on their parent's health insurance plan and claimed as dependents on their tax returns, if they are injured or become disabled, the parent may require a court order to act on their child's behalf.
If you have unmarried children over age 18, have them sign a health care proxy (sometimes called a healthcare Power of Attorney) authorizing you to make health care decisions on their behalf, if they cannot. A young person should also be encouraged to have a living will (also known as advance directives) giving his/her preference about end of life care.
2. Every adult over 18 should have a power of attorney. This allows another person to take over their financial matters if they are no longer able to do so. You may have a "Springing Durable Power of Attorney”, allowing the named party to be a Power of the Attorney only after the occurrence of a specific event, such as incapacitation. The shortcoming of a "Springing Power of Attorney" is that a court ruling may be required before the Power of Attorney takes effect.
3. Anyone 18 or older should have a will. Without a will, the deceased has died "intestate." When one dies intestate, the state in which the deceased lives determines to whom their belongings and financial assets will go. This can be especially problematic for a single person or a person in a second marriage who would like some of their assets to go to their children.
Many states provide for 100 percent of an intestate deceased's belongings to go to their current spouse. With a properly executed will, you can define where all assets (except retirement accounts) will go. You may even have an addendum that provides for specific items to go to a person that may not be otherwise included in the will.
4. If your children are minors and you are a single or surviving parent, dying intestate means that the court will appoint a guardian for your children. This may not be the person you would have chosen. With a will, you and your spouse should agree on your choice of guardian and name this person in each will.
5. If you have a 401(k) Plan, an IRA or any other type of defined contribution retirement plan, be sure each retirement account has designated beneficiaries and contingent beneficiaries. Since retirement accounts are not considered “probate” assets; they pass entirely outside of the will, making is critical to have a named beneficiary.
With a workplace plan, such as a 401(k), a married person’s spouse is automatically deemed the beneficiary. The spouse must provide written permission to change the beneficiary to another party. If you are recently divorced, be sure to file the necessary paperwork with your employer to change your beneficiary from your former spouse.
With an IRA account, the account owner is allowed to name any beneficiary they wish, including a trust or charity. As with a work place plan, be sure to change the beneficiary upon divorce or your account could end up with your ex-spouse.
Estate planning is a difficult task, requiring us to recognize our mortality. However, much heartache and grief can be caused when this planning is ignored. Estate planning is not only for the very old and should be done by anyone over age 17. Begin your estate planning now so that you or your family will not regret it later.