When people hear about Wills and Trusts, they may think of the one-percenters. They may imagine trust fund children using old money they’ve inherited to travel the world and live lavishly. While for a select few, that is the reality of it, many are left to wonder, “Do I really need an estate plan?” What does estate planning for the middle class even look like?
After all, maybe you plan on simply leaving everything to your children. Maybe you do not think that your estate even warrants having documents to dictate its disposal. A comprehensive estate plan does much more than just direct your assets upon passing.
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What is the Purpose of Estate Planning?
A comprehensive estate plan creates a broad safety net for you. It does this by ensuring that people have the authority to help you with financial and medical decisions while you are alive and after you pass away. It also ensures that your assets go smoothly to your loved ones after you pass away. Additionally, if done well, it can also help to minimize estate, inheritance, and income taxes.
Whether it be naming a guardian for any minor children you may have, naming an agent who can speak to doctors in a hospital if you can’t, or allowing someone to pay your taxes and bills if you have an accident, an important aspect of a well-rounded estate plan will ensure that the correct people are ready to act in the event they are needed. While this may not seem like a pressing issue, once the situation arises, it is already too late create the necessary paperwork.
As you can see, estate planning for the middle class has the same basic goals as estate planning for high-net worth individuals. The difference is merely in the scope of the estate plan.
Main Estate Planning Documents
A typical, well-drafted estate plan should include at least three documents: 1) a financial power of attorney; 2) advance directives for healthcare/healthcare power of attorney; and 3) a Last Will & Testament. The three of these documents create a comprehensive foundation that can provide benefits for most any adult.
That being said, there are often times in which individuals may wish to create a trust. Even when doing estate planning for the middle class, a trust could be beneficial to minimize probate, provide structure for minors or those with substance abuse problems, or ensure that a proper balance is maintained in blended families (e.g. providing for a current spouse as well as children from a prior relationship.)
Furthermore, while not typically considered estate planning documents, comprehensive estate planning for the middle class also includes proper asset titling. This means that ownership on deeds and financial accounts are aligned with your plan. It also means that you have properly and consistently named beneficiaries on life insurance and retirement accounts.
Financial Power of Attorney
A financial power of attorney (commonly referred to, generally, as a “power of attorney”) names an agent, or agents, who can help manage your finances, assets, and property for you. Many estate planning attorneys default to creating a “durable” financial power of attorney. The “durable” part indicates that the powers are effective the moment you and your agent sign the document, and that power will remain even if you become incapacitated.
Whether it is something as trivial as writing a check for you when you are on vacation, or something as substantial as paying your mortgage while you are in the hospital, a Durable Financial Power of Attorney can ensure that you will have someone at the ready who can help you out.
It should be noted though that many individuals prefer to have a Springing Financial Power of Attorney, which is effective only in the event of incapacity. However, the downside to that is that the agent must prove that you are incapacitated – which could take months or years. Nevertheless, a Springing Financial Power of Attorney can offer some peace of mind to those who are uncomfortable fully delegating these broad powers immediately. Here is an article about the differences between a Durable Financial Power of Attorney and a Springing Power of Attorney if you would like more on this topic.
Advance Directive for Healthcare/Healthcare Power of Attorney
An Advance Directive for Healthcare/Healthcare Power of Attorney is also frequently known as a Living Will. For many, this document is perhaps the most important of all. This document names an agent who can be your mouthpiece in the event you are unable to make or communicate medical decisions for yourself. Further, you may be able to make a few determinations in this document ahead of time that gently instruct your agent on what preferences you may have in some situations.
An Advance Directive for Healthcare/Healthcare Power of Attorney helps your loved ones stay abreast of your condition when they would otherwise be left in the dark. Moreover, in the event of long-term incapacity, this allows another to direct your care and carry out your wishes.
Last Will & Testament
A Last Will & Testament is the main document that people think of when they think of estate planning. This is the document that, in addition to other things, states who you wish to inherit from your estate. While that is certainly important on its own, there are two other big benefits that can be enjoyed by creating a Will.
Under a Will, you can also appoint guardians to care for any minor children you may have. For parents of minor children, if there ever were a time where the courts needed to appoint a permanent guardian for your children, they would have to fully vet several possible candidates themselves, and the children would ultimately wind up in the care of whoever the court determined to be the most appropriate option. While it may end up being the same person or people that you would have chosen, it may not end up that way. By creating a Will and appointing guardians for your minor children, there is a much higher likelihood that your children will end up in the custody of the person or people you believe are most appropriate for that role.
The other big benefit of a Will is the ability to name an executor. Your executor would be the person in charge of administering your estate. Similar to the points made about guardians above, without a Will, the court will be left to their own devices to determine, at their own discretion, who should serve as your executor. This may be a person that you personally would not have chosen, for whatever reason.
At What Point Do I Need An Estate Plan?
The reality is that every adult needs an estate, plan. The real question should be: “How comprehensive of an estate plan should I have?”
Maybe you are newlyweds who just bought your first home and have a baby on the way. In that case, you should at least have a Will to appoint a guardian to care for your child, a financial power of attorney, and a health care power of attorney. Maybe you are a single senior who rents and has minimal assets. In that case, you should still have a financial power of attorney and healthcare directives to ensure you have people in line who can assist you as day-to-day tasks become more difficult. How about an eighteen-year-old going off to college? They should at least have their healthcare directives in place so that their family can speak with doctors in the event they have a medical episode while they are away at school.
Also, the more that assets are properly titled and beneficiaries are named, the less likelihood that a Will would even be needed.
We could go on and on explaining techniques that can be used when doing estate planning for the middle class, but the bottom line is that most every adult has a reason to create their estate plan. The utility of these documents extends far beyond naming beneficiaries of multi-million-dollar estates.
Conclusion
By being proactive and creating estate plannings documents ahead of time, you can rest assured knowing that the right people are in place to act, should it become necessary. As illustrated above, a coordinated estate plan creates a thorough safety net that will have you covered, regardless of what life throws at you. Estate planning is not just for the uber wealthy. Estate planning is for the middle class and anyone who wants to make things easier for themselves and their loved ones.
If you wish to learn more, the estate planning attorneys here at The Pollock Firm LLC can help you clarify your options and demystified the process.
Written by Brendan R. Hanley, Esq.
