The last few months have been a whirlwind, and not in a good way. A wave of serious health issues has been turning life upside down for a too-large handful of our clients. The saving grace amid this sudden onslaught has been this: every family we’ve been helping to deal with a health issue each had a sound financial plan in place before their crisis hit. Plus, once they received a diagnosis, they each took the time to revisit their existing estate plan to be sure everything was in order and that their plan reflects the current tax law. Today, they each have a sound plan in place that is aligned with their wishes.
If not, you’re certainly not alone. No one likes to think about dying, and so we simply don’t. According to a recent survey by Caring.com, only 4 in 10 American adults have a will or living trust. That’s a dismal statistic, and not only because of the complications it causes in the aftermath of a death. An equally troublesome side effect of not having an end-of-life plan is that it can have a very negative impact on the physical and psychological health of anyone facing a critical illness. Experimental studies suggest that psychological stress can fuel a tumor’s ability to grow and spread. A study at the Laboratory for the Study of Stress, Immunity and Disease at Carnegie Mellon University found that chronic psychological stress impeded the body’s ability to regulate its inflammatory response. Young or old, healthy or not, that means that failing to plan really can be bad for your health.
Whether you’ve procrastinated creating your plan or let inertia set in and haven’t revisited your plan for five years or more (it happens… I’ve done it myself!), this news should be a serious wake up call. Once a crisis hits, having to manage estate planning details should be the last thing you need to worry about. Knowing that the stress of not having these details “buttoned up” can have a negative impact on your health outcome makes it even more of a priority.
The good news is that estate planning doesn’t have to be difficult. Yes, it does take time, Yes, it requires some uncomfortable conversations. Yes, your own death is probably the last thing you want to think about. But estate planning is a necessary part of any good financial plan. Plus, if you have a good team in place, you can realistically begin the process one week and have it done before the next. The peace of mind you’ll have from that day forward will be well worth your effort—regardless of whether or not you have to face the trauma of a health crisis any time soon.
Estate planning is an important piece of your comprehensive financial plan, even if you don’t consider yourself wealthy. While the word ‘estate’ may conjure up images of Downton Abbey, the truth is that you need an estate plan if you have any assets at all. If you own a car, a house, or even a small 401(k) plan, you need to decide who will receive it when you die. If you don’t have a will or a properly named beneficiary, the probate process can be a nightmare for your survivors. A basic estate plan includes a will, a healthcare Power of Attorney, and a Durable or Springing Power of Attorney for your finances.
Here’s what you need to know to get started:
- (Almost) everyone needs a will.
I’ve had prospective clients come in for a meeting who, despite significant wealth, haven’t created a will. Don’t make that mistake! Your will is a legally binding document that ensures your wishes are carried out after you die. If you have minor children, it dictates who will take care of them and, perhaps even more importantly, who will not. Your will also names an executor and trustees to manage your affairs after your death, including paying off your bills, canceling your credit cards, notifying the bank, and more. It also ensures your assets end up in the hands of the people and charities you choose—not those you don’t who may be more than happy to take your money!
- A Healthcare Power of Attorney is important at any age.
A Healthcare Power of Attorney (POA) names someone to make medical decisions on your behalf if you can’t make them for yourself. Because this person may one day be deciding whether or not life support measures are in your best interests, how your personal and religious values will impact proposed treatments, and more, it’s important to choose this person very carefully. Note that a Healthcare POA goes farther than a ‘living will,’ which only applies if you are terminally ill, permanently unconscious, or in an end-of-life condition as defined by state law. If you are temporarily unconscious or otherwise unable to communicate, a Healthcare POA is essential. That’s true whether you’re 18 or 102.
- A Durable or Springing Financial POA protects you and your money.
Durable and Springing Financial POAs give someone the authority to manage all of your financial affairs for you if you become incapacitated. That includes handling simple financial tasks—paying your bills, depositing your checks—and larger ones—overseeing your retirement and investment accounts, filing your tax returns, and more. Be sure that, the person you choose is trustworthy, willing to take on these important responsibilities, and understands that it is okay (if not 100% desirable) that they use a portion of your assets to hire a professional advisor to help!
- An outdated estate plan is almost as bad as no estate plan.
One great catalyst for creating an estate plan is having a child. New parents often feel an urgency about taking care of that new bundle of joy. But suddenly years go by, toddlers turn into teenagers, and your estate plan becomes the last thing on your mind. As a result, the guardians that seemed ideal when your kids were younger may no longer be your pick. Or though you had hoped your child would be financially responsible at 18, that is clearly not the case today. Or you’ve been widowed or divorced. As well, recent changes to the tax law may affect the most suitable type of trust for you. Life changes. Reviewing and amending your estate plan every five years is vital to keeping your plan aligned with your current reality.
- Naming an appropriate trustee is key.
Your parents may have been the obvious choice as trustee when you were younger, but today they may no longer have the ability to serve as a trustee. (You may even have taken on managing your parents’ finances by now.) At the same time, your children may not yet be mature enough to handle the responsibility of managing your assets with care. In a world where many families are scattered far and wide, it can be difficult to find an appropriate trustee who is willing and able to take on the emotional burden of serving in this role. If you don’t have an obvious choice, consider working with a trust company to serve as your trustee. In the past, this approach was reserved for businesses, but today many companies offer personal trustee services as well. If you go that route, be sure the company you choose specializes in personal trusts to be sure they can meet your needs. (If you’re a client of TandemGrowth, we’re happy to help with the selection process.)
Now is the time to stop procrastinating. Don’t wait for a diagnosis to “button up” your estate plan. If you have a financial advisor, he or she is the best place to start. (If you don’t, read my blog post, How to know when a financial advisor is “the one” for you.) A comprehensive wealth manager often has the most insight into your values, your family dynamics, and the steps you need to take to be sure your wishes are carried out after you die. Plus, he or she is probably already collaborating with your CPA, attorney, and other professionals that play their own roles in the estate planning process.
By taking action now, you can create greater financial security for your family and loves ones, and potentially save large amounts from unnecessary taxes for years to come. And remember, estate planning is good for your health! Planning before a crisis comes your way can give you financial peace of mind and eliminate the stress that can hinder your health today and tomorrow.
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