A harsh truth that we all must face at some point is that death is inevitable. While this may seem like a grim way to begin a conversation, it’s the reality we must confront when it comes to estate planning. Estate planning is the process of determining how your assets will support you during your life and who will inherit them if you pass away or become unable to make decisions for yourself. Regardless of your age, wealth, or life circumstances, having an estate plan is essential. It’s a crucial step to ensure your wishes are respected and your loved ones are cared for when you’re no longer able to do so.
Getting from uncertainty to action in estate planning
The question that we need to cover today is how you get from Point A where you have a suspicion that you need some help when it comes to planning for end-of-life situations to Point B where you have successfully attended to that matter. A hope and a wish won’t get you there. Neither will reading hordes of blog posts like this one. Information is a good thing, don’t get me wrong. However, you can start to get paralysis by the analysis if you catch my drift. Inaction is not good no matter if it is due to having no information or having too much.
Today’s blog post from the Law Office of Bryan Fagan hopes to thread the needle between these two opposite ends of the spectrum. I think the perfect place for you to begin the process of learning about estate planning is to take the components and look at them carefully so that you understand what estate planning is and how you can be proficient in approaching it. Make no mistake, estate planning can be complex and difficult for you and your family. Certainly, nobody would argue that it is a pleasant subject to discuss. However, let’s put on our grown-up pants and get after it.
Don’t turn estate planning into something more than it is
There are two ideas that I want to cover before we get into our topic today of estate planning. The first is that many people assume that estate planning is only for rich people with a lot of property. We see estate planning as something out of a movie that involves big houses, a successful family, and all the trappings of wealth. The reality of the situation is that most of us are not wealthy and even fewer measure up to the sort of wealth that we associate estate planning with from television and movies.
Most of us have assets, including income, property, and sometimes debts. Estate planning is for everyone, not something to fear or avoid. Like any process, it can seem overwhelming from a broad perspective. In this post, however, we’ll break estate planning down into manageable parts. By understanding each component, we can approach it with confidence and ease.
The better you understand what you are going to be approaching when it comes to estate planning the more willing you will be to participate. I would never recommend that you engage in a process that you do not understand. That would be like investing in something that you have no clue about. It would be risky at best and disastrous at worst. Rather, why not learn about this process as best you can and then make decisions for yourself that suit you and your situation? This is a much better option than doing nothing.
Do you know what you own?
An essential part of estate planning is knowing what you own, or as scholars say, “the extent of your bounty.” Your estate includes the property and debts you are responsible for or own. This property can pass to your heirs or beneficiaries under a will, as long as it doesn’t need to be sold to pay off any debts you owe. While estate planning isn’t solely about property, figuring out what you own is often the first step for many people when starting the estate planning process. You may be surprised to learn what you have in your life that is worth planning for.
Personal property is anything that is not real property. It includes those things that are not attached to the ground. More commonly, it is usually those things that we can pick up and carry away. The most significant types of property are things like real estate including our homes. These are also probably our most significant and valuable assets in terms of dollar value. The family home, at least, carries with it a certain amount of emotional value in terms of it being the place where you raised a family and have many memories tied up within it.
For this reason, deciding what happens with your family home after you pass away can be a difficult concept. If you’re married, the home is typically left to your spouse or co-parent. However, as a childless single person who owns a home, you need to decide what happens to the property in your estate plan, as it would likely be inherited by your parents.
Consider vehicles and personal property in your estate planning
Anything with wheels and a motor should also be considered when it comes to your personal property. I am talking about your vehicle including your car and vehicles that you may own for recreation or as a hobby. While these are assets that do not necessarily increase in value over time, they certainly are assets, nonetheless. As a result, you should pay close attention to determine what happens with these property items.
Just about everything else that you own would fall into the category of personal property. This could be the personal property that you own in your home including furniture, collectibles, family heirlooms, and home décor. Walk around your home and video record each room to document the contents. This simple step helps you create a plan for how to distribute these items after your passing, ensuring they are accounted for in your estate plan.
You also own intangible assets—things you can’t physically touch but still own. These include items like checking and savings accounts that you likely use every day. While you may not forget about these assets, it’s easy to overlook the things we use most often. Surely an example of this would be your credit or savings accounts.
Managing payable-on-death accounts in estate planning
Many times, these types of accounts can bypass probate if you include payable on death components. To do so, you simply need to select a person to receive the accounts upon your passing and inform the bank of your choice. The bank, credit union, or other financial institution would have you sign a form designating the pay-on-death beneficiary. That way, the contents of these accounts could pass directly to your beneficiary without first having to go through probate.
Next, we can consider traditional investments like stocks, bonds, mutual funds, and other items like these. You may have this investment stored with an investment advisor or even with a brokerage house. Much in the same way as bank accounts, many investments like these can bypass probate if you include beneficiaries with each.
You should ask your investment advisor or the brokerage firm that house your funds to determine whether this is possible. If at all possible, you should seek to do what you can to bypass the probate process. While in some cases probate is necessary it can also be expensive and time-consuming. If you can limit the amount of time that your beneficiaries or heirs must wait to receive property from you then that would certainly be for the best.
Managing cryptocurrency and life insurance in estate planning
It’s important to consider how you want cryptocurrency handled in your end-of-life planning. Much of it can be treated like any other asset. You can document the location of your cryptocurrency and provide any necessary identifying information for beneficiaries to access the funds after your passing. Consult your investment advisor to determine if you need to take additional steps for securely transfering your digital assets. By taking the necessary precautions, you ensure that your online assets are safely passed on to your heirs and beneficiaries.
You may have also accumulated various life insurance plans over the years and that can add up to serious value for the beneficiaries of those accounts. Much like we see with other types of investments and bank accounts, life insurance policies do not go through probate. The entire point of a life insurance policy is for the beneficiaries of those accounts to be able to get access to the funds relatively quickly after your passing.
You need to update the beneficiary on these accounts based on life changes. Divorce and death should prompt you to review your life insurance policies. Make sure to check if changes to the beneficiaries are needed. The last thing you want is for an ex-spouse to be named as the beneficiary instead of your current spouse or children.
Figure out the value of your property
At the Law Office of Bryan Fagan, we advise clients to inventory and appraise their property, similar to how appraisals are done for homes when buying or selling. While formal appraisals are crucial for lenders, in estate planning, estimating the value of your property informally is still essential. This helps you understand your assets and plan effectively for the future.
Understanding your home’s value is important, as it’s likely your most significant asset. You can hire an appraiser for a formal valuation. However, a quicker, more affordable option is to check home-selling websites for an estimate. While property taxes are based on your home’s value, keep in mind that the county appraisal district won’t provide an accurate estimate unless you’ve recently sold the property.
Estimating the value of your assets, like financial accounts, is usually a simple process. You can easily check online to determine their worth, and then include that in your overall net worth. Why is this important? Well, understanding the value of your property helps you plan how to divide it in a way that makes sense for you and your loved ones. Many people choose to divide their property evenly between children or other beneficiaries. You can also decide to allocate specific items—like a vehicle or home—directly to your spouse, while leaving the rest for other family members. Ultimately, it’s up to you how you distribute your assets, and knowing their value helps make those decisions easier.
Take into consideration the specific circumstances of your family
Ultimately, estate planning is a process that requires you to consider the unique circumstances that your family finds itself in. Regardless of your family composition, your family is unique. You must carefully consider your family’s needs before determining the best way to divide the property.
One key aspect of estate planning for children under 18 is naming a guardian in case of your passing. Your spouse would typically be the guardian, but you can challenge this presumption. Even after a divorce, a parent may not be deemed a suitable guardian for the child’s well-being or property under certain circumstances.
However, if both you and your spouse were to pass away simultaneously there will be a question of who would take care of your children in that event. You should begin to think about who is best suited to take on this responsibility. Having a discussion with your spouse about this subject is a healthy one to have. The two of you can go over your concerns and your thoughts and decide how you want to proceed.
Importantly, it is a great idea for you to make sure you get in touch with the person you are interested in naming as a guardian. That way everyone can be on the same page and he or she will not be named his guardian without having first been consulted. This might seem like common sense, but it is an issue that my wife and I have tackled in our own lives that I think bears mentioning here.
Conclusion
In conclusion, when it comes to estate planning, being as thorough as possible with your wishes for your children is crucial. This often involves setting up a testamentary trust, which would activate if you and your spouse pass away simultaneously. Such a trust includes detailed instructions on how money should be spent on the children and general provisions for their care. Your estate plan is a personal document, and you have the freedom to be as specific as you wish in outlining your intentions. The more precise you are, the better it will be for you and your family in the future.
Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan
If you have any questions about the material contained in today’s blog post, please do not hesitate to contact the Law Office of Bryan Fagan. Our licensed estate planning attorneys offer free-of-charge consultations six days a week at our three Houston area locations, over the phone, and via video. These consultations are a great way for you to learn more about the world of estate planning and how your family may be impacted positively by your acting in this area of your life.
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