Estate planning is just as important as the other financial planning topics, but most people tend to procrastinate and put it off until “later”. This is understandable, no one likes to think about what would happen after they or their loved one dies. But it’s important planning that you shouldn’t put off for too long, especially if you have young children.
The good news is that you’ve likely already done some estate planning without even realizing it. And once you see that you’ve already made some good first steps, we’re here to give you the nudge to complete the rest of your estate plan with the 4 critical estate planning documents that every physician should have.
- You’ve probably already done some estate planning by designating beneficiaries for your retirement accounts and life insurance
- If you die without a will it is up to the state and a probate judge to decide who will receive your assets
- The four critical estate planning documents every physician should have are: Will, Financial Power of Attorney, Healthcare Power of Attorney, Living Will
- Physicians with minor or young adult children should consider adding a trust to their estate plan as well
Estate Planning Decisions You’ve Already Made
When you fill out the paperwork for your employer 401k/403b and check the box designating your spouse or another loved one as your beneficiary you completed an estate planning task. Great job! See, I knew you could do it. Those assets will pass at death to whoever you designated without going through the probate process, even if you haven’t prepared a will.
Retirement accounts and life insurance will ask you to designate a beneficiary, but you can also designate beneficiaries on many non-retirement/insurance accounts like your savings, checking and brokerage accounts by changing the registration to “TOD” transfer on death or “POD” payable on death. Just ask your bank, broker, or advisor.
You’ve also likely made an estate planning decision with regard to your home. If you own your home with a spouse or partner and it’s titled as JTWROS (Joint Tenants with Rights of Survivorship) your share of the ownership passes to the other owner upon your death. No trip through probate required.
It’s important to distinguish JTWROS from TIC (Tenants in Common). With TIC your portion of ownership remains a part of your estate and could be subject to probate instead of automatically passing to the other owner.
What is Probate?
I mentioned probate above, but what is it? Probate is the process where they state distributes your assets based on your instructions, if you have a will, or based on state laws if you don’t have a will.
Probate is a public process presided over by a judge which airs your financial information to the public. This could lead your surviving family members and heirs to be targets of predators and scam artists.
Many estate planning decisions are made to avoid probate which can be time consuming and expensive. It is also a new and seemingly complex process that your executor must manage during an already stressful time.
Your 4 Critical Estate Planning Documents
Now that you realize you’ve already started on your estate plan there are 3 critical documents you need to complete it.
Disclosure: I am not a lawyer and you should seek advice from a legal professional for your situation and for the documents recommended below. I think having these documents as part of your estate plan is extremely important to your overall financial plan and you should work with an expert to ensure they are created properly.
Critical Estate Document #1: Will
This document outlines who will receive your assets after your death, except for the assets that already have a designated beneficiary as we discussed above.
Inside your will you would designate an executor, whose job it is to see that your instructions are carried out. It is also where you would designate guardians for your minor children.
Depending on your situation your will still may go through the probate process, but without one your assets will be distributed based on the laws of your state, which may or may not align with your wishes.
Critical Estate Document #2: Durable Financial Power of Attorney
A financial power of attorney grants another person the ability to act on your behalf regarding personal, financial, and business matters. This document allows someone to make financial decisions for you if you are incapacitated or otherwise unable.
You want to ensure it is a “Durable” financial power of attorney, otherwise in most states the power of attorney will automatically end if you later become incapacitated.
You want to put some thought into who you designate as your financial power of attorney as while they are legally required to act in your best interest, they also will have the ability to make decisions all the way from paying bills to buying and selling property in your name.
Critical Estate Document #3: Healthcare Power of Attorney
This document is basically a mirror image of the financial power of attorney but for your medical decisions while you are incapacitated.
This is another extremely important document as the person you designate as your healthcare power of attorney can make decisions about your medical care when you are physically or mentally unable.
Critical Estate Document #4: Living Will
A living will is a document that is typically created along with a healthcare power of attorney. While the HCPOA grants authority for someone to make medical decisions on your behalf the living will lays out your instructions for care in the event that you are terminally ill and/or in a permanently unconscious state.
By creating a living will you make your wishes known in writing beforehand of what should be done if you should end up in this situation, and remove the burden of a loved one having to make the decision for you.
BONUS Critical Estate Document #5: Trust
There are many types of trusts that can be used in estate planning. For families with minor or young adult children and substantial assets a revocable trust is an important document to consider in addition to the first four documents mentioned above.
If you have minor children and just a will in place your assets that you intend for them to inherit will likely be managed by the guardians you designated. Once your children turn 18 though, the entire inheritance is theirs to do with as they wish. No strings attached. With life insurance and other assets involved, this could be quite a lot of money. Consider what you would have done if you received a few million dollars on your eighteenth birthday.
With a trust in place, you can specify a trustee to manage your assets for the benefit of your children or other beneficiaries. You can specify that money from the trust should be used for education, a first car, or help with a house down payment and when the balance will ultimately become theirs. An often-used recommendation would be for a child to receive half of their inheritance at age 25 and the other half at 30.
So that’s it, four or maybe five documents that every physician should have in place as part of their estate plan. Hopefully reading this article and learning what exactly goes into each document gives you the confidence to make an appointment and finish your estate planning today!