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Estate Planning Basics

Estate planning matters whether you’re 32, 62 or 92 years, though for many it can be overwhelming both not knowing where to start or what to prioritize. Surely, we all know people that spend countless hours planning their next vacation or agonizing over where they are going to dine out this weekend, yet the thought of outlining their final wishes gets little attention.

At Breakwater Capital Group, it’s safe to say, we feel that having a plan to protect our interests and our loved ones is quintessential. Leaving this to chance or neglecting it all together can cost those left to pick up the pieces both time and money. Not to mention, other unintended consequences, which may have been avoided or minimized had we put in the effort.  To be clear, you don’t need a fancy house or a sizable net worth to have an estate plan. And even if you haven’t accumulated much yet, it may actually mean there is an even greater sense of urgency in establishing a plan earlier in life depending on your circumstances. 

We put together a list of 8 key elements that are a part of a basic estate plan, with the hope this is quick education and a little nudge. Here goes:

1. Will – A will is a legal document that outlines how your assets and property should be distributed upon your death. It allows you to name beneficiaries, appoint an executor to handle your estate, and designate guardians for minor children, if applicable. This is the backbone of your estate plan.

2. Power of Attorney: A power of attorney grants someone you trust the authority to make financial or legal decisions on your behalf if you become incapacitated or unable to manage your affairs. There are different types of power of attorney, such as a durable power of attorney, where the appointed agent can act on your behalf without conditions or a springing power of attorney, which becomes operative with a triggering event, like a doctor’s note indicating diminished capacity. You can appoint a power of attorney at any age though it’s more common with the elderly, just make sure you trust your appointee. 

3. Healthcare Proxy or Medical Power of Attorney: This document designates someone to make medical decisions for you if you are unable to do so yourself. It allows you to specify your healthcare preferences, such as end-of-life care or organ donation. It’s important to have a discussion with the trusted individual who will serve in this capacity.

4. Living Will: Also known as an advance healthcare directive, a living will expresses your preferences regarding life-sustaining medical treatments and interventions if you are in a terminal condition or persistent vegetative state and cannot communicate your wishes.  This may be tucked into your Healthcare Proxy or may be a standalone document.

5. Trusts: A trust is a legal arrangement in which you transfer assets into an entity expressly created for a certain purpose. The trust has three key players, the roles can be handled by the same individual serving as all three or may have three different parties.

      • Grantor/Donee:  The individual that funds the trust.
      • Trustee: The individual responsible for the administration/management of the trust.  A trustee is a fiduciary, whose  duty of care is to the trust’s beneficiary.  
      • Beneficiary: The person(s) that stands to benefit from the trust, they may have an income interest or access to the trust’s principal for certain purposes

Trusts come in all shapes and sizes, they can help avoid probate, provide privacy or asset protection, allow for more control over the distribution of assets and help minimize taxes in some instances. Common types of trusts include revocable living trusts, irrevocable trusts, and testamentary trusts. 

6. Beneficiary Designations: Certain assets, such as life insurance policies, retirement accounts, bank and brokerage accounts, allow you to name beneficiaries who will receive those assets directly upon your death. Ensuring that beneficiary designations are up to date is an important part of estate planning. An inexpensive solution for who gets what.

7. Guardianship Designations: If you have minor children, it is crucial to name guardians who will care for them until they reach the age of majority, should you pass away or be incapable of caring for them. Oftentimes there is a section in the will devoted to custody or guardianship, though it may also be a standalone document. 

8. Letter of Instruction: While not legally required, a letter of instruction can provide guidance to your loved ones regarding your funeral arrangements, the location of important documents, passwords, professional contacts like your wealth advisor, attorney, and tax accountant and other details that may not be covered in formal legal documents. 

Every estate plan is by definition unique, just like our DNA or fingerprints. That said you may opt for some basic documents and simplicity or look to create a more highly individualized approach depending on your circumstances, goals, and applicable state laws. This isn’t meant to be “here’s a to do list, you’re on your own”.  We are here to help as we have traversed this topic frequently over the years and we can offer helpful insights. As you begin working with your trusted wealth advisor, we’ll start by identifying your priorities and frame an outline of what that plan may look like. That way you are prepared for a more fruitful discussion when you formally engage with an estate planning attorney to start ironing out the specifics and implementing the plan. Being better prepared and likely saving a couple dollars along the way, seems like a good use of your time.…

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