In 2008, Congress passed a resolution proclaiming the third week in October as National Estate Planning Awareness Week. The resolution provided that “many Americans are unaware that lack of estate planning and financial illiteracy may cause their assets to be disposed of to unintended parties by default through the complex process of probate.”
It’s true that estate planning is an often overlooked area of financial management. It has been estimated that over 50% of American’s have no estate plan. Many people mistakenly believe that it is something only for the retired or wealthy.
At a minimum, a person’s estate plan should typically include a will, durable power of attorney and health care power of attorney/living will.
A will nominates the person(s) you want to be in control of your assets when you pass away, and gives them instructions for distributing those assets to your chosen beneficiaries. For those who have minor children, a will also allows you to designate a guardian for them.
Because a will doesn’t take effect until you die, it is also necessary to separately provide for management of your assets and personal well-being if you become incapacitated. That’s where power of attorney documents come in.
A durable power of attorney designates a person who will handle your financial affairs if you are incapacitated and unable to act. A health-care power of attorney allows you to designate a person to make medical decisions for you in the event you are unable to do so yourself. This document is typically coupled with a living will which details your wishes regarding the use of life-sustaining measures in the event of a terminal illness.
As mentioned by Congress, proper estate planning can also in many instances help avoid the costly and lengthy process of probate.
Take this week to consider the importance of establishing an estate plan or revising your current estate plan if your family or financial situation has changed.