I suspect that there are many 30- and 40-somethings who get accustomed to investing early in their life, but still have no concept of what estate planning should look like in their circumstances. For example, many employers offer a company retirement plan and make a strong pitch to get their new hires to participate. It's reasonably easy to find someone (a peer or someone in Human Resources) who will offer their opinion on how to pick among the available investments, and every year the administrator of the plan will make another presentation about increasing your contributions. It's always right there in front of you.
The same can't be said about estate planning, but it's definitely just as important (and, remember, I don't make any money selling wills). It might even be more important than investments for young parents of minor children.
So, first, let's start with a reminder of what I even mean. I'm talking about 1.) a will (and maybe trusts) to deal with your stuff after your death, 2.) powers of attorney to dictate who can make decisions on your behalf, and 3.) medical directives that detail your final wishes. That's as simple as it gets.
Next, let's look at the biggest of the items, wills/trusts and powers of attorney (healthcare directives are the easiest part of the process, and surely won't be the hurdle to stop you from getting everything done). I'll give examples from the perspective of a young parent to help demonstrate where they come into play.
Wills and Trusts.
Your will can act as a backup to catch anything that didn't have a beneficiary attached to it. For example, Melissa and I have beneficiaries assigned to each of our investment accounts, checking accounts, car titles, and life insurance policies. Next, we need to also do the same on our house deed (which Missouri allows). So, wills in our case would dictate how to distribute our house and all of the belongings in it if we were to die.
Trusts offer another layer of control that's important to understand for those with minor children. Let's say, for example, that our kids are named as the secondary beneficiaries on our life insurance. At our deaths, the life insurance payout will not be made to minors without a custodian/financial guardian in place, which might get complicated for those administering things after our death. If, instead, we used a trust as our contingent beneficiary, the check from the insurance company will be sent directly to the care of the trust, and we would have already assigned a trustee to take care of things. There's lots more to say about trusts and all they can do. But, not everyone needs one. Find an attorney to work through the specifics with you.
Powers of Attorney.
Some married couples decide to manage their finances separately. This can create dicey circumstances if either of them is ever incapacitated and proper planning isn't in place. Imagine that the husband is injured in an ATV accident while out hunting, and his wife needs cash from his bank account during his hospital stay. Very few banks would allow his wife to access any information on the account without a documented financial power of attorney, which is fairly easy to have a lawyer draft well in advance. While at it, you'll also want the same thing for healthcare decisions (a healthcare power of attorney). Your decision-maker for finances can be different from your decision-maker for healthcare.
Stay tuned. More to come...check out Part II.