Estate planning through the years
Virtually everyone needs an estate plan, but this isn’t a one-size-fits-all proposition. Even though each person’s situation is unique, general guidelines can be drawn depending on the stage of life you’re currently in.
The early years
If you’ve recently embarked on a career, got married or both, now is the time to build the foundation for your estate plan. Estate planning is even more critical if you’re already married and you and your spouse have started raising a family.
Your will is at the forefront. Essentially, this document divides up your accumulated wealth upon death by deciding who gets what, where, when and how. With a basic will, you may leave all your worldly possessions to your spouse. If you have children, you might bequeath some assets to them through a trust managed by a designated party. Try to think beyond just the next few years.
A will also designates the guardian for your children if you and your spouse should die prematurely. Make sure to include a successor in case your first choice is unable to meet the responsibilities.
If you don’t have a will, state law governs the disposition of assets and a court will appoint a guardian for any minor children. Most likely, you don’t want these decisions taken out of your hands.
During your early years, your will may be supplemented by other documents, including trusts, if it makes sense personally. In addition, you may have a durable power of attorney that authorizes someone to manage your financial affairs if you’re incapacitated. Frequently, the agent will be your spouse. Also, obtain insurance protection appropriate for your lifestyle.
In any event, talk matters over with your spouse. Your estate plan should reflect these discussions.
The middle years
For many middle-aged parents, the main financial goals are to acquire a home, or perhaps a larger home, and to set aside enough money to put their children through college. As a result, you might modify existing estate planning documents to meet your changing needs.
For instance, if you have a will in place, you should periodically review and revise it to reflect your current circumstances. Now that your children are older, you may not have to worry about a guardian, but you might shift the division of assets to accommodate college expenses. Again, a trust may be a convenient way to address these issue, especially if you’re concerned about a child squandering his or her inheritance.
Typically, minor revisions to a will can be achieved through a codicil. If significant changes are required, your attorney can re-write the will entirely.
If you haven’t already created a power of attorney, the need is often more pronounced during the middle years. Furthermore, healthcare directives can complement a power of attorney. Reconsider the party named as your agent — frequently, the agent may change from a spouse to a younger family member or professional at this stage of life.
If you and your spouse decide to divorce, it’s critical to review and revise your estate plan to avoid unwanted outcomes.
As you approach the later years, your children may have graduated from college and moved out of the house. This usually changes the dynamic for “empty nesters.” Significantly, you may start shifting your emphasis from college savings to preservation of assets, with appropriate revisions to estate planning documents.
The later years
Once you’ve reached retirement, you can usually relax somewhat, assuming you’re in good financial shape. But that doesn’t mean estate planning ends. It’s just time for the next chapter.
For instance, you may be inclined to change bequests in your will, perhaps adding provisions to grandchildren born in recent years or subtracting for those who have died. Or, if there has been a family conflict, you may wish to “disinherit” family members by removing them from your will. Depending on the situation, a codicil may suffice.
The same principles apply to a power of attorney. It may be advisable to designate a different agent or name a new successor. Again, a divorce can also precipitate amendments to your estate plan.
If you haven’t already done so, have your attorney draft a living will to complement a health care power of attorney. This document provides guidance in life-ending situations and can ease the stress for loved ones.
Finally, create and fine tune a letter of instructions. Although not legally binding, it can provide an inventory of assets and offer directions concerning your financial affairs.
Revisit your plan periodically
Regardless of the stage of life you’re currently in, it’s important to bear in mind you’re your estate plan isn’t a static document. You and your estate planning advisor must periodically — particularly after a major life event — review and revise your plan as needed.
SIDEBAR: The business side of things
If you’re a business owner (or hold substantial business interests), it’s critical to account for the business in your estate plan. First, consider what would happen to the business if you should suddenly die or become incapacitated. Adopt contingency plans and acquire adequate insurance for these purposes.
Next, during your middle years, begin thinking about a succession plan. Do you envision your children taking over the reins? Develop a strategy for a smooth transition.
When you’re ready to retire, put your succession plan into action. Otherwise, make preparations for the sale of the business. This should be incorporated into your overall estate plan.