Estate Planning Basics Podcast


Wondering whether you need an estate plan? Learn what triggers the need for one and where to begin.

 

Transcript:

Doug Fabian:    Do you need an estate plan? When was your estate plan last updated? Why is this such an important step on your journey to economic freedom? We answer these questions and more on this episode of The Science of Economic Freedom.

 

Disclaimer:       The Science of Economic Freedom is intended as an investor education resource. Views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio. This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

 

Doug Fabian:    Welcome to The Science of Economic Freedom. I’m your host Doug Fabian. This podcast is all about helping you achieve your financial dreams. We call that economic freedom. This program is about your journey to achieve economic freedom for yourself and your loved ones. Today we want to help you identify your next step on that journey. This is Episode 10, Estate Planning Basics, or When Do I need an Estate Plan? This is the 10th episode in our 11-part series that covers the basic knowledge needed to make progress on your journey to economic freedom. If you are new to The Science of Economic Freedom, we encourage you to listen to all 11 episodes. These episodes will help you understand the process and what steps you need to take next on your journey.

 

Estate planning sounds like something wealthy people should do. You may be thinking, “I don’t need this. It sounds expensive, complicated, and time consuming.” Or you could be thinking, “I’ve already done this. My estate plan is complete.” Now let me address both groups. If you are serious about economic freedom, you will need an estate plan. Hang with me as I explain who needs one, what an estate plan is, and why you need to act sooner than you may think. For those of you who have completed your plan, this overview of the basics is important because estate plans are never done. Most of these plans should be reviewed every three to five years or when there has been a change in the estate planning rules. Getting a refresher course on estate planning will be a good thing. So let’s get started.

 

Who needs an estate plan? Anyone with assets, real property, a retirement account, savings in the bank, or anyone with family members you provide for. Assets include real estate, retirement accounts, savings accounts, brokerage accounts, mutual funds, life insurance, or business interests. Remember, back in Episode 5, we talked about building your balance sheet. What are your balance sheet assets worth these days? A rule of thumb is if your assets are in excess of $100,000, you must have an estate plan. Now, family members you want to provide for, these include your spouse, children, or others you are financially responsible for. Let’s talk about life events for a moment. Getting married, having children, buying a home, accumulating more than $100,000, have any of these life events happened to you? Also negative events are triggers. The death of a family member, a divorce, or a health scare can be a motivating factor to consider creating an estate plan.

 

The next question is: why? Why does having assets or family members that need to be provided before trigger the need for an estate plan? Because an estate plan are your instructions to the world on how you want your affairs to be handled in the unlikely event you pass away suddenly, who gets what, and who takes care of your kids. Now, here’s what happens if you don’t have an estate plan and you pass away. If you’re married, generally all of your assets and the guardianship of the kids will pass to your spouse. But after that, things get complicated. Decisions will be made by the court system in a process called probate. The court will decide who will raise your kids and how your assets will be divided up. This is an expensive process, and the process will come out of your estate. You may not be happy with the outcome. And probate is a very public process with notifications being filed on the Internet and in newspapers, your assets and family on public display.

 

Now, let’s talk about what. What is an estate plan? An estate plan is a series of documents that memorializes how you want your affairs conducted if you were not able to make decisions for yourself or you were not there. An estate plan is not just a will. Today’s estate plan includes wills, trusts, guardianship of your children, financial power of attorney, medical directive, and instructions on end of life. An estate plan documents who will raise your kids, who will make medical decisions if you are unable to, who will oversee your assets if you are not there. Without these key documents and designations, your state government will determine what to do with your assets through the probate process. Probate can not only be very expensive, but it is a long and drawn-out process.

 

Now, where does an estate plan fit in your financial plans? An estate plan is a series of documents that provides structure to your assets and responsibilities. It plans for the distribution of your assets based on your wishes. For most of us, an estate plan will be a legacy, but it is also there as instructions and directions if a sudden death should occur.

 

When should an estate plan be reviewed? An estate plan should be reviewed every three to five years, or when a life event happens, or rules change. These include marriage, birth of a child, divorce, or significant change in your balance sheet. In addition, if there are changes in the estate laws at the state or federal level, you should review your estate plan.

 

How does one create an estate plan? Estate laws are governed at both the federal and state levels. Now, you need to hire an attorney in your state that specializes in this area of law. You can go to the State Bar Association website, search attorneys by specialty, or you can rely on your own network of friends and family for a referral. We suggest interviewing at least two candidates. We don’t advise using an online or do-it-yourself process for these very important documents.

 

Now, let’s talk terminology. Let’s go through a glossary of terms. There is a need to understand certain terms regularly used in the world of estate planning. Here is a description of those terms. In the big picture, estate planning is the process of anticipating and arranging during one’s life for the management and disposal of that person’s asset at or after their death. A revocable living trust is the foundation of an estate plan. This document describes how you want your assets distributed and who is the beneficiary of your trust. A revocable trust can be changed by the trustees at any time for any reason. Once created your assets will be titled in the name of the trust. There are many different types of trusts. For purposes of this estate plan overview, we are only discussing revocable living trusts. Please discuss with your estate attorney if other trust options would fit your special situation and needs. Let’s talk about a trustee. A trustee is the person or persons in control of the trust. In the case of a husband and wife, they would be co-trustees. When the trust is prepared, you want to appoint an administrative trustee. That would be who handles your estate when both trustees have passed away. Beneficiary is the person who will benefit from the trust. A guardian would be the person in charge of the well-being and daily care of children under the age of 18. A pour-over will is used in conjunction with a living trust to cover any assets that may not have been transferred into the revocable trust. The financial power of attorney is a document that gives control over your assets to your nominee in case of your incapacity or death. And an advanced medical directive or medical power of attorney is the document that gives health care control to your nominee in case of your incapacity. And then there is the HIPAA authorization, which permits individuals named to obtain medical information about you.

 

Now, this is just a broad overview. And we hope this podcast helped to determine if you need an estate plan or if your estate plan should be reviewed. Here are the action steps. We always conclude Science of Economic Freedom podcast with a discussion of next steps. In this case, please answer the following questions: do I need to create an estate plan now or sooner? If so, then finding an estate attorney would be the logical next step. Remember: interview two.  Next, if, from this discussion, you believe your estate plan should be reviewed, consider whether your original attorney should do the review, or you need to seek a new one. Lastly, if you have an estate plan review, please look closely at who you have designated as the administrative trustee and the nominee for your financial and health care power of attorney to confirm that this decision works for you going forward.

 

If you have questions, comments, or show topics, please send me an email. My email address is [email protected] This is Doug Fabian. Thanks so much for listening.

 

Disclaimer:       The Science of Economic Freedom is intended as an investor education resource. Views and opinions expressed on this program should not be construed as a recommendation to buy, sell, or hold any specific security. Consult your investment advisor and read any investment prospectus carefully before making any changes to your investment portfolio. This program is sponsored by Mercer Advisors. Mercer Global Advisors Inc. is registered with the Securities and Exchange Commission and delivers all investment-related services. Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services.

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