Writing a will and planning for the handling of our estate can be unpleasant because it forces us to deal with our mortality. But if you want a good example of why you should address your estate soon, take a look at Prince, the rock star who unexpectedly died in April of an accidental painkiller overdose at age 57.
He left an estate valued at as much as $300 million, but no will. With no spouse or children, his sister and five half-siblings are fighting over the fortune, which will easily be cut in half after taxes and lawyers fees. However it ends up, we can be sure, it won't be what Prince wanted.
To make sure that when you die your estate isn't dragged through the courts and decimated by taxes, and other decisions are carried out the way that you want, you need to take the following five steps now.
1. Take an inventory of your assets and liabilities to determine your net worth and what comprises your entire estate. Are you dealing with life insurance policies or other assets that will pass outside of probate, which are court proceedings held to prove your will is valid? Certain assets like a family business will require special provisions in estate plans.
"Before you go to an attorney or write your will, spend time doing your homework. This will make the meeting more fruitful and dive deeper into the issues," said Veronica Van Nest, senior consultant at family wealth management group Manning & Napier in Fairport, N.Y. "It will save money on the tail end."
2. Determine who you want to be your beneficiaries. Then decide how you want the assets distributed. "You also need to determine the manner in which they benefit. Will they receive it outright or through a trust?" said Barbara Lawrence, chair of trusts and estates at the law firm of Herrick, Feinstein in New York City.
Josh Passman, an attorney in West Hollywood, Calif., said if you have children, you might want a trust to stagger when they receive the money, such as some at age 18, 25 and 30. "The decisions we make with money at 18 are different from those we make at 30. The idea is to make sure their education is paid for, " he said.
"Make sure to update your beneficiaries on workplace retirement accounts and life insurance policies," said Ryan Frailich, founder of Deliberate Finances, an RIA in New Orleans. "Young people sometimes make their parents beneficiaries, then forget to change it when they get married, or forget to take their spouse off when they get divorced."
3. Determine who will manage the plan. Do you want the executor to be a family member, an attorney or a corporate trustee? It depends on the nature of the assets. But you should also choose someone to have power of attorney if you become incapacitated and an advance health care directive so someone can make medical decisions on your behalf. You might also want to think about a living will to spell out what medical decisions you would prefer, such as do not resuscitate.
4. Determine what type of plan makes the most sense. While writing a will makes sense for most people, some people might want to consider a revocable trust instead, especially if you own real estate or other property in several states. It's also a way to avoid court oversight.
5. Find an attorney to draw up your will and estate plan documents. Ask friends, relatives and business associates for referrals to attorneys with estate planning expertise. You can also use referral services offered by your state's bar association or the American Bar Association's interactive state-by-state lawyer referral directory.
Unless your estate is very simple, it's important to consult with a person rather than an online resource because there are a lot of nuances that go into drafting these documents. And you will probably want advice on choosing your trustees and children's guardians.
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