Estate Planning: Why Me?
A friend of mine mourned the loss of her husband, who died of a heart attack at age 56. Although most people understand their mortality by the time they reach their fifties, this man didn't believe in insurance or planning for the future, and hence died with no coverage, very few assets, and no will.
For years prior to his death, my friend fought a losing battle with her husband, encouraging - even begging - him to consider a will, powers of attorney, and insurance. His never-changing reply was "What do I care? I'll be dead anyway. Everything will go to you and that's that".
But amidst her grieving, as she rifled through the last of his belongings, filed his last tax return, and consolidated his finances into hers, she was left with nothing but bills. Lawyer's fees, accountant's fees, taxes, probate, funeral bills, a mountain of debts he wasn't forthcoming about, and a whopping tax bill reflecting years of mismanagement of his assets and taxes - all adding up to a substantial sum of money. And with each new bill, actual resentment towards her late husband brewed.
After three years of toiling to resolve his estate (which appeared uncomplicated at the onset) and paying off the ensuing bills which ended up being over $100,000, my friend wanted a divorce from her late husband.
I cannot stress enough how important it is for everybody to consider their estate plan and to prepare a will. Even young single people can benefit from having a will - or at least their parents and siblings can, especially if there is any sort of division of loyalty among family members. Governmental legislation has a formula they apply for the division of assets (and debts) in the event of there being no will, but it certainly is not ideal. And even the simplest of estates can become muddled in confusion and resentment if not dealt with properly.
For example: You have a spouse and two small children. Legislation will designate the first "x" dollars of your estate value to your spouse, and then will divide the remainder equally between your spouse and children. The children's inheritances will be paid into a court system and held until they are 18 years old, with many restrictions as to how that money can be used prior to then.
What is your Estate?
Your estate is everything you own when you die; from the shoes on your feet, to your retirement accounts, to insurance policies.
What makes up an Estate Plan?
Things that should be reviewed as part of an estate plan include wills, powers of attorney (although they come into effect while you are still alive but incapacitated), and insurance policies.
For business owners, a succession plan is crucial. Otherwise, your employees, customers, and suppliers will be left "holding the ball" if you disappear unexpectedly. Your children or spouse may lose out on inheriting something they could be interested in, as there are muddy waters around corporate succession if there isn't anything documented in the charter papers about it. Also, if you have a business partner and they die without properly planning their own estate, their share of the business could be left to an uninterested and incompetent spouse by default. Or worse - their share of the business goes to minor child to be held in trust. In both cases your own share of the business is in jeopardy.
Okay, I want to start planning. What next?
Firstly, you should take a snapshot of your current estate situation; consolidating information into one easy document or notebook. Things to document include:
- Bank account information (bank addresses, account numbers, etc)
- Security Deposit Box location
- Financial assets (institution, account numbers, approx value)
- Financial debts (institution, account numbers, approx value)
- All other assets (car, house, jewellery, incidentals)
- Insurance policies (location of policy, type, company, policy number, amount)
- Memberships (gyms, auto association, miscellaneous - your executor needs to know this information in order to cancel services or gain access to automatic insurance benefits)
- Pension information (company, amount, survival benefits, who to contact)
- Location of powers of attorney
- Numbers of people (friends and family) to be notified
- Contact info for lawyers, accountants, financial planners, and other key team members
Ultimately this information will be kept with your will when you have one, but for the meantime it is a launching pad for you to start planning your estate.
Planning Your Estate
Once you have an idea of what you own, you can formulate a plan for how you would like it to be doled out to those you love. Sometimes it's easy: "everything goes to my spouse". But even the simplest of situations can become complicated: what if your spouse goes with or before you? Determine not only the beneficiaries, but also the contingent beneficiaries for everything.
Consider who your executor will be. (And of course, then decide who the contingent executor will be).
It is common practice not to choose parents as executors, as more often than not they don't succeed their children. Instead, choose somebody close to your age or younger. (For people in their 20s and 30s without a spouse or siblings, you could initially nominate a parent, but may eventually want to designate your lawyer to the task.
See a Professional
Many people are enticed by the simplicity of a hand-written will, or using one of the numerous inexpensive legal will kits that are widely available. I cannot discourage this more! These boilerplate home-made wills are fraught with terminology that is vague, leaving loopholes for potential ugliness to crop up when your loved ones need it the least. There are improperly drafted wills that have literally torn families apart, or left them in waiting for literally decades for resolution due to a clause that had to go to the courts for interpretation.
The best way to avoid this can of worms is to accept the short-term pain of using a lawyer for the long-term peace of mind of having an iron clad will in place. Most lawyers will also keep a copy of the will in their offices, so if yours gets lost or burns in a fire, there is always an accessible copy.
I Don't Want to Plan my Will Now! It's Gonna Change…
Yup. If life rolls the way it should, it will toss you lots of curve balls that mean changes to your will. Moving in with new spouses, booting old spouses out, serious family quarrels (and not just spats - I mean serious!), and close friendships are all legitimate reasons to review your estate plan.
The good news is that you don't have to completely redraft your will to change small clauses or beneficiaries; more often than not an addendum at the end will suffice, thus minimizing legal fees and complications.
I Don't Have any Family. Why Bother?
If you die and don't have any family members at all who the government can contact to wrap up your estate, then the government gets to keep everything.
Now I'm not anti-establishment or anything, but why not instead make sure that your favourite charity, community sports league, or even quirky café down the street benefits instead?
Although morbid in nature, estate planning doesn't have to be a morbid chore. In fact, envisioning how the future for your family, friends, and favourite charities could be simplified or improved with a properly planned estate can actually be a comfort - especially once it is in place and you can forget about it.
We're here to live life now; but let's not forget where we came from and where we're going.