I came across this interesting article "8 Life Stages of Estate Planning". The premise is simple, but often overlooked in today's busy lifestyle. You aren't the same person at 45 you were at 30, or at 65 you were at 45, or at 85 you were at 65 - your estate plan should reflect the you of today, not who you were yesterday.
1. Young, Single and Carefree - Until you turn 18, your parents make financial decisions for you. Once you hit that magic age, they no longer have the legal authority to do so. Give them the power to make decisions for you if you can't by at least having:
- A General Durable Power of Attorney naming your parents to make financial decisions for you if you can't
- A Health Care Proxy/Living Will naming your parents to make medical decisions for you if you can't
2. Single, but Committed - Unless you have a Will or Trust that says otherwise, upon your death all your assets will pass to your parents or siblings. You may want to create a Will or Trust that names your partner as beneficiary, or perhaps name them as a beneficiary of life insurance or IRA or 401(k), or own assets in joint name with a right of survivorship.
3. We're Engaged! - Congratulations, but face the fact that a lot of marriages don't work out. A Prenuptial Agreement can protect assets you acquired before marriage so they can be security for you if the marriage ends. Parents, if your children don't get a prenuptial agreement, you may want to change your estate plan to leave inheritances in trust instead of outright to your children to protect them from claims of equitable distribution in a divorce.
4. Just Married - This is a major life change that calls for taking another look at all your estate planning documents.
- Update your Power of Attorney and Living Will/Health Care Proxy to name your spouse (or other appropriate person).
- Create a new Will or Trust benefiting your spouse and perhaps other family members. Bear in mind that when you get married your spouse becomes entitled to some part of your estate when you die (typically 1/3 to 1/2) just by virtue of being married.
- Change your Beneficiary Designations on things such as life insurance, pension, 401(k), IRA, 403(b) - the beneficiary does not automatically become your new spouse just because you got married. Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.
5 - The Joys of Parenting - You MUST, MUST, MUST create a new Will naming a Guardian for your minor child. The Will is the only place you can name a Guardian, and as difficult as it may be to consider this decision, it is incumbent upon you as a parent to provide for who will care for your child if you can't - it is not fair to your family or your child to leave the decision to some overworked judge.
You should also consider revising your Will to leave any assets passing to your children in trust until such age as they can manage them. You will need to name a Trustee (who can be different from the Guardian or the same) to manage the money until a certain age. I recommend mandatory distributions be no earlier than 25 (they may still be in school at that age) and staggered over time (such as 1/2 at 25, the balance at 40) so the child has time to learn financial skills before the dollars are turned over to him or her. The Trustee should have broad discretion to make distributions from the trust to the child before the mandatory distribution ages.
You may also want to consider life insurance (particularly term insurance) at this point to create additional assets for your spouse and children in the event of your death.
6 - The Agony of Divorce - Divorce is a reality. In some states becoming separated or divorced cuts any benefits to or fiduciary roles of your former spouse - in other, it doesn't. You need to change your Will to reflect your new status. You may need to change your Will or Trust once during the separation stage and once when the divorce is final. Some people still name their former spouse in some roles, others don't want the person in their life ever again.
Divorce does not automatically rescind all Beneficiary Designations. So just like you did when you got married, you need to change your Beneficiary Designations on thing such as life insurance, pension, 401(k), IRA, 403(b). Speak to your Human Resources department about such things as health insurance, flexible spending accounts, health savings accounts, etc.
If you get re-married, you need to consider how to best provide from children from one marriage and a spouse and children from another marriage. You may wan to consider life insurance owned by a trust to create an additional pool of assets upon your death.
7. The Middle Years - Here, your estate may be increasing to the point you need to consider estate tax planning. In New Jersey, estate tax planning is relevant for estates over $675,000. You may want to create trusts within your Wills or Trust that are designed to minimize estate tax so more of your assets eventually pass to your children.
You may also want to look at long term care insurance at this point to create a source of dollars to pay for your care should you become ill and need assistance as you age.
8. The Golden Years - At this point, you likely know what you have and know how you spend it. Your plan needs to be focused not so much on "What happens if I die?" (as all your prior planning addresses that), but "What happens if I live?".
You may want to engage in a gifting strategy, either to reduce taxes, or just to see your beneficiaries enjoy while you are still here. You can do outright gifts, pay for grand-children's education, gift real estate or businesses over time, or a myriad of other strategies.
You may also be concerned about asset protection - either for yourself if you get sick, or in how your beneficiaries receive assets. Trusts can be designed to make sure only the beneficiaries have the benefit of the assets, not their creditors or spouses.