A good estate plan will reflect the changes you experience in life. Here’s a breakdown of the estate planning tools you should consider if you’re just beginning life’s journey, halfway through, or approaching the finish line.
Single, young adult
When you celebrate your 18th birthday, your parents no longer have the legal right to make financial or medical decisions for you. For your own protection, it’s critical that you execute three documents:
- A Will nominates someone to administer your estate and designates your beneficiaries.
- A Durable Power of Attorney authorizes a trusted person to access otherwise private information and manage your finances if you become incapacitated.
- An Advance Health Care Directive allows someone to make medical decisions on your behalf. The “living will” paragraph of your directive sets forth your wishes concerning life-sustaining medical treatment. Be sure your directive mentions the Health Insurance Portability and Accountability Act (HIPAA) and Confidentiality of Medical Information Act (CMIA) [patient privacy laws]. Without a HIPAA/CMIA release, third parties may refuse to speak with your agent.
Single, but committed
If you want your life partner to make important decisions and inherit your possessions, it’s time to revisit your Will, Durable Power of Attorney, and Advance Health Care Directive. You may wish to consider a Revocable Living Trust depending on your specific asset holdings.
Engaged
Many marriages fail because the couple never had serious conversations about money. Consider whether your marriage would benefit from a Prenuptial Agreement?
Newlywed
Marriage does not give your spouse the legal right to access private information or to make financial or health care decisions on your behalf. While there are laws to protect an “omitted spouse” from being disinherited from your premarital estate plan, show your spouse you care, and update your documents.
If you haven’t made an estate plan on the assumption that “everything goes to your spouse,” be advised that California law only awards the surviving spouse the couple’s community property. If you owned anything prior to marriage, or if you received separate property gifts or inheritances, these assets will be divided between your spouse and your parents.
Make a will to definitively state who will inherit from you. Consider a trust if you own a home or other significant assets. You might also purchase life insurance to provide for your spouse, particularly if he or she would be left with a sizable mortgage.
Don’t forget to change your beneficiary designations on your bank accounts, retirement plans, life insurance policies, etc., so that they will pass to your spouse. If you are not designated your spouse as primary beneficiary, you may need to obtain his or her notarized consent.
Parent
There’s nothing like bringing a baby into the world to spark your sense of responsibility! As soon as you’re expecting, you should deliver mom’s Advance Health Care Directive to her prenatal doctor.
Most significantly, you’ll need to update your will to nominate a guardian to care for your minor child if you and your spouse pass away.
It’s also time to consider a Revocable Living Trust so that your assets will be available to your child through the guidance of a trusted adult. This “trustee” can support your child as he/she grows up, protect an inheritance from creditors or ex-spouses, and eventually turn over the remaining funds when your child is sufficiently mature to make his/her own decisions.
Each time you have a child, be sure your estate planning documents and beneficiary designations address all of your children.
Finally, don’t forget to examine and consider increasing your life insurance. Experts suggest that you’ll need about $1 million per child. If you have a special needs child, set up a special needs trust to provide for your child without jeopardizing his or her government benefits.
Divorced
Unless you want your ex- to have access to your information, make decisions on your behalf, and inherit your estate, you should change your estate plan documents and beneficiary designations before you file for divorce.
After the divorce is finalized, review your documents again to be sure that everything is in good order. Too often we discover that an ex-spouse is still designated as beneficiary on a life insurance policy or other asset.
If you remarry, revise your estate plan to reflect the proper decision makers and beneficiaries. Most people want to provide for their new spouse while also leaving an inheritance for children from prior relationships.
Middle aged
As your children mature, it may be time to reduce or eliminate your life insurance policy, loosen restrictive trust provisions, and designate one or more children as your decision makers. Perhaps you’d like to incorporate gifts for grandchildren? If a child is struggling, consider more protective trust terms.
It’s also time to look into long-term care insurance.
Golden aged
Review your estate plan to be sure the people you’ve appointed are still in your life and willing and able to serve. You may start making final arrangements, such as planning your funeral, to ease the transition for your loved ones.