As life expectancy increases and 40 becomes the new 30, many of us don't expect to need to think about the future just yet. We may even expect that we won't be retiring until we're in our 70s. So why in our 40s do we need to think about an estate plan?
The unfortunate truth is that tragedy can strike at any time. If you have any assets you want protected or dependents you want to be taken care of should you become incapacitated or pass away, the time to start planning is now.
For anyone making an estate plan, regardless of age, there are some essential items that should be added:
- A will. If you pass away, your loved ones will need to know what to do with your home, your car, bank accounts and all personal possessions. To avoid family infighting about who gets what and how to divide physical assets, make a plan.
- An executor. Determining who will carry out your wishes is just as important as laying out your wishes. A friend or relative who has the capacity to handle these decisions, with the help of an estate lawyer, could be an option. However, if your estate is more complicated, outside professional management may be better.
- Beneficiaries. You can change these at any time, and having an estate plan now that you can update whenever you want with whomever you want to benefit will remove the hassle of determining who should be named later.
- A living trust. This will allow someone (likely your executor) to manage your affairs in the event you become incapacitated. Establishing a living trust and a successor trustee will allow someone to make decisions as if you were doing so yourself.
- Living will or advance directive. There is nothing worse for a family than having to make a potentially life-altering medical decision without your consult. You can outline all of your wishes in this directive so your family doesn't have to think about it.
- Medical power of attorney. This person can take on the responsibility of executing any wishes laid out in your living will, removing the need for family members to feel awkward about who has to make the decisions.
- Financial power of attorney. Similarly, someone should be chosen to manage your financial affairs in the event you cannot. You can limit their functions or make them all-encompassing, depending on your preferences.
- Tax planning. Until the estate tax is repealed or adjusted, an estate valued at $5.45 million or more will be subject to federal taxes. And in Illinois, the limit is $4 million. An estate plan can minimize the impact of those taxes on your beneficiaries.
An estate plan is ultimately for your loved ones more than it is for you. The stress of grieving your loss or caring for you in illness, especially if this happens while you are still young, can cause your family to make decisions that upset each other or hurt each other's feelings irrevocably. Having a plan in place can remove that awkwardness and keep families together.