Estate planning might sound like something only your wealthy great-uncle Frank has to worry about. You may wonder how your worldly possessions could possibly qualify as an “estate.” Believe it or not, almost everyone needs to take care of some basic estate planning, especially newlyweds. Most newlyweds don’t want to think of the possibility of losing their spouse, but the fact is that losing your spouse could be an even worse experience without the proper estate plan in place.
If you only do the bare minimum of estate planning, make it a will. In your will, you can leave your property to your spouse or whomever else you’d like. You should also determine secondary beneficiaries in the event that both of you die at the same time. Your will should name a designated executor, the person responsible for making sure your wishes are carried out. Without a will, your property is at the mercy of your state’s laws. Depending on which state you live in, this could leave your spouse out in the cold. Additionally, if you have children, your will should designate guardians in case you and your spouse die at the same time.
While creating a will is a great first step in estate planning, it cannot help you avoid probate. Probate is the process of executing a will, and it can take months or even years, and cost up to 5 percent of the value of the estate. The time and money involved in probate is probably not what you had in mind for your beneficiaries. If you live in a community property state, your property will automatically transfer to your spouse at the time of your death (unless noted otherwise in your will or prenuptial agreement). In a common law state, however, you’ll have to make sure that you and your spouse hold large property in “joint tenancy with right to survivorship.” This will ensure that your spouse automatically acquires ownership upon your death.
Another method of avoiding probate is the use of living trusts. A trust is a separate legal entity that holds property, so anything within a trust is exempt from probate upon your death. In addition to avoiding probate, a trust can provide a tax shelter. Marital trusts are trusts that address the specific needs of married couples. There are several types to choose from, with options for various circumstances.
Prenuptial and Postnuptial Agreements
A prenuptial agreement is a contract made between two people before their marriage begins. A postnuptial agreement, as the name suggests, is created after the marriage takes place. Both agreements generally specify what property is held by each party prior to marriage and how that property will be divided in the case of divorce or death of one spouse. Prenuptial and postnuptial agreements are especially useful for couples where one party owns a business, has children outside the marriage or has considerable property from before the marriage. These agreements can be helpful in determining property ownership, especially for couples living in a community property state who do not want all property evenly divided or vice versa.
Certain property can be passed directly to beneficiaries without the use of a will or trust. For instance, life insurance benefits, retirement plans and bank accounts can all be left to your spouse when you die, as long as you name him or her as the account beneficiary. When you designate a beneficiary, your account becomes “payable on death,” thus avoiding probate court and fees. If you don’t want to leave an entire account to your spouse, you can split up the assets among various beneficiaries. It’s also a good idea to list secondary beneficiaries in case the primary beneficiary also dies. Naming beneficiaries on your accounts is fast and can be done without the help of a lawyer.
Your estate plan is not only a plan for your death, but also a plan to provide for you if you were to become incapacitated. It’s important to determine what should happen to you and your property if you become unable to communicate or make decisions for yourself. A living will can specify health care treatments you do and do not want and how you’d like to be treated in the hospital. For instance, do you want to be kept on life support? Do you want to be fed through a tube if necessary? Will you donate your organs? If the time comes, you won’t be able to answer these questions yourself. Avoid putting the decision-making burden on your spouse by listing your wishes in a living will.
Your estate plan should also include a power of attorney designation, which is the person to make decisions for you if you become unable to do so yourself. You’ll probably assign your spouse with power of attorney, because he or she is most likely to know your wishes. Even if you have a living will, your power of attorney can make decisions that aren’t specified there. For instance, the power of attorney can make financial decisions such as paying your bills or managing your money. You can invoke the power of attorney even if neither spouse becomes physically or mentally incapacitated—if one of you is out of town, for example, the other can sign important documents and make decisions on his or her behalf.
There are two major myths about estate planning. The first is that it is a grueling, depressing process. Getting your estate in order does not have to be difficult to complete. If you are relatively young and have a small estate, the process should be quick and can even bring couples closer to each other. The other myth is that your estate isn’t large enough to warrant an estate plan. If you’d like to override the state laws pertaining to property ownership, or if you’d like to ease the burden on your spouse in the event of your death, estate planning is definitely for you.