Having a comprehensive estate plan is essential to preparing for your and your family’s future. But not everyone knows when to create – or update – one. On top of that, the topics that come up during this process are often considered to be morbid. This leads many individuals to avoid the subject entirely, which may put their family at serious risk.
When to create, when to update
Financial advisors generally recommend planning your estate once you become a legal adult, and then updating your plan every three to five years. Not everyone remembers to take these steps, however. It may be more useful to think of estate planning in terms of major life milestones, such as:
- Becoming an adult (turning 18 in Massachusetts)
- Getting married or remarried
- Getting divorced
- The birth of a child or grandchild
- Inheriting property or money
- Purchasing a house or other real property
- Moving out of the state
- Traveling (especially out of the country)
Each of these has obvious effects on your personal estate – that is, the wealth you would leave behind when you die – and who would inherit it. These are all excellent times to either create your estate plan or revise it.
Another life event that triggers many people (perhaps a majority) to consider their estate plan is the development of a serious illness or injury. After all, nothing puts one’s estate in clear focus quite like the possibility of passing away or becoming unable to care for oneself. But waiting until you become sick or injured to establish or modify your estate plan is generally not a good idea. If you become legally incapacitated, for example, you won’t be able to create a valid estate plan. It is strongly advised that you don’t wait to reach this point before planning.
Specific steps for specific life events
While making or updating a comprehensive estate plan is the best approach, some individuals choose to do it piecemeal. They may create a will at one point, for example, and establish a trust at another. Here are some examples of how various elements of an estate plan may correspond to your life events:
When to make a last will and testament. This document is arguably the most fundamental and indispensable part of an estate plan. You should make a will once you reach any of the milestones mentioned above.
When to create a trust. Trusts protect and distribute assets according to the wishes of the grantor (the person who creates the trust). They may accomplish other goals like avoiding probate and minimizing estate taxes. If you wish to provide financial support for loved ones (beneficiaries) upon your death, or you want to ensure that your assets don’t disqualify you from Medicaid/MassHealth, it’s time to consider a trust. It may also be necessary to create a trust if you have minor children for whom you want to provide assets, or you need to protect an incapacitated spouse.
When to nominate a guardian. Once you have children, you will want to ensure they will be taken care of if you or the other parent pass away. This can be done by nominating a guardian, and the last will and testament can serve this purpose.
When to prepare for end-of-life events. In the event you become incapacitated, you will not be able to make decisions about your finances, your healthcare, or your end-of-life medical treatment. This is where instruments such as the health proxy and durable power of attorney come in. As mentioned above, you should prepare these sooner rather than later. But if you’ve been injured or diagnosed with an illness, the time to work on these is now.