Is Estate Planning Just For the Rich and Famous?

You might be thinking..."I don't have an estate to plan." Or, "that's only for the 1 percent so they can avoid taxes." No matter how much (or little) money we have, we need a plan.
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You're playing SaveUp, so you're mindful of your spending and savings, which is great! Just keep in mind that there are other aspects of your finances to consider. The term "estate planning" can sound intimidating. You might be thinking..."I don't have an estate to plan." Or, "that's only for the 1 percent so they can avoid taxes." The term might conjure images of iron gates and a Bel Air mansion with a five car garage etc. However, estate planning is not just for the guy being served a martini by the pool. I'll make the case that planning your legacy is important and why each of us should give it thought and take action.

No matter how much (or little) money we have, we need a plan. I'll use a few famous examples, and yes, some of these people were extremely wealthy. However, I'll also point out concepts that are applicable to regular folks like you and me.

Estate Planning Basics

First off, estate planning documents such as wills, trusts, durable powers of attorney and advanced healthcare directives aren't just about money. They extend beyond the distribution of assets to express how we want our remains handled and dependents cared for when we die. Documents can specify how you would like to receive (or not receive) medical care if you become incapacitated. You might also address meaningful philanthropic wishes in your plan.

Health Care

Terri Schiavo is probably one of the most tragic examples of someone who didn't have an advanced healthcare directive. Unfortunately, her lack of proper documents made her famous for all the wrong reasons. During her ordeal there was a lot of media coverage about the battle over her care between her husband and parents while she remained in a vegetative state.

Trustworthiness and Communication

You need someone trustworthy to carry out your plan. Choose this person wisely otherwise you could end up like tobacco heiress Doris Duke. According to The New York Times, her butler was left in charge of her foundation but mismanaged funds.

Tell everyone involved why you took the time to put certain measures in place and where you keep original copies of your documents. Also, give your loved ones copies for their records.
It's important to communicate your wishes in plain English (vs. the legalese that is likely used in your formal documents).

Probate Court

One common reason to establish documents (trusts or wills) is to avoid probate court and/or hasten the process of settling the estate. Additionally, a trust can be kept confidential whereas information expressed in probate (with or without a will) is public. There are also costs involved with probate court which you might want to avoid for your family members. This is particularly true if the probate process takes a long time.

A nightmarish example is Jimi Hendrix who didn't have any formal documents in place. According to Legal Zoom, court battles took over 40 years to finally settle, and his mother's family didn't receive any of the proceeds. It seems likely this was not in accordance with his desires.

Charitable Wishes

If you want to leave a gift to charity, you can be most effective with a plan. Paul Newman went above and beyond a simple plan with the creation of the Newman's Own Brand and establishing a foundation. According to the foundation's website, "Over $350 million has been donated by Paul and the Newman's Own Foundation to thousands of charities around the world."

However, it doesn't take a fortune to give effectively. For example, you could make the beneficiary of your 401(k) or IRA a legitimate charity. Using a tax deferred retirement plan to give is most effective because all the money goes to the charity. Alternatively, if you give that money to a person, it is taxed when it is distributed. Of course this isn't right for everyone because you might have dependents who will need that money.

Getting Started

You don't have to become famous first; instead, start planning now. The Five Wishes workbook is a resource to help you start thinking about what is important to you when it comes to your care and legacy. Put the appropriate documents in place and review them every five years or when your circumstances change. It is critical that your documents always express your current wishes.

As a CERTIFIED FINANCIAL PLANNER™ I don't practice law or draft estate plans. However, I make sure the estate plan is in harmony with other aspects of my clients' finances. It is very important to have coordinated advice when it comes to financial, tax and estate planning issues.

Putting an estate plan in place will give you peace of mind as you SaveUp!

This post was written by SaveUp's personal finance contributing writer, Catherine Hawley, CFP®.

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