Get your wishes organized

An estate plan is simply a set of documents that says what you want to happen to your belongings, who should care for your children and who should make decisions for you if you can't. Everyone has some kind of plan. If you don't write one, your state's laws supply a default one.

When there's no will

If someone dies without a will (lawyers call this "intestate"), state law decides who inherits, usually in a fixed order such as spouse, children, parents and then other relatives. A court appoints someone to handle the estate. That default may be close to what you'd want, or it may not, especially in blended families, for unmarried partners or when you'd like to include a friend or a cause you care about.

When there are young children

If both parents are gone and no guardian is named, a court decides who raises minor children, and it may also need to appoint someone to manage money left to them. A will is usually where parents name a guardian, so the court knows your choice.

Three common myths

• "I don't own enough to need a plan." Naming a guardian, a decision-maker for medical care and the person who handles your affairs matters at any income level.
• "My spouse gets everything automatically." Not always. In many states, children or other relatives can share in the estate, depending on the family situation.
• "I'm too young." Accidents and illness don't check your age. Many people start when they marry, buy a home or have a child.

A will (a "last will and testament") is a written set of instructions that takes effect when you die. It's often the first document people create.

What a will usually does

• Says who receives the property that passes under your will.
• Names an executor (in some states, a "personal representative") to gather assets, pay final bills and distribute what's left.
• Names a guardian for minor children.

What a will usually doesn't do

• It generally doesn't control accounts with a named beneficiary (like a 401(k), IRA or life insurance), "payable on death" or "transfer on death" accounts, or property owned jointly with right of survivorship. Those pass by their own paperwork (see chapter 4).
• It doesn't help while you're alive. If you can't make decisions because of illness or injury, a will can't act for you; powers of attorney do that (chapter 5).
• It doesn't keep an estate out of probate.

Probate in plain English

Probate is the court-supervised process of confirming a will, paying debts and taxes, and transferring property. In some states and for some estates it's fairly simple; in others it can take many months, cost more and become part of the public record. How long and how much varies widely by state and by estate.

Making it valid, and keeping it current

States have signing rules, such as a certain number of witnesses and sometimes a notary. A will that isn't signed correctly may not be accepted. Review your will after big life events: marriage, divorce, a birth or adoption, a death, a move to another state or a major change in what you own.

A trust is an arrangement where one person or institution (the trustee) holds and manages property for the benefit of others (the beneficiaries), following written instructions. The person who sets it up is often called the grantor or trustmaker.

Revocable living trusts

This is the type most families hear about. You create it while you're alive, you can usually change or cancel it, and you often serve as your own trustee. You name a successor trustee to take over if you become unable to manage things or when you die.

Reasons people consider one:

• Property held in the trust generally passes without going through probate.
• It can stay more private than a will, which usually becomes public in probate.
• It can provide for management if you become incapacitated.
• It can hold money for children or others until an age or milestone you choose.

Things to know: a revocable trust usually costs more to set up than a will, it generally doesn't reduce income taxes, and it generally doesn't protect assets from your own creditors.

"Funding" the trust

A trust only controls what is placed in it. Retitling a home or bank account into the trust's name, or naming the trust as a beneficiary where that makes sense, is called funding. An unfunded trust is a common and costly mistake. Many people with a trust also have a short "pour-over" will that sends anything left outside the trust into it.

Other trusts you may hear about

• Irrevocable trusts: harder or impossible to change; used for specific goals that an attorney can explain.
• Trusts for children: hold an inheritance until a child is older.
• Special needs trusts: can help provide for a family member with a disability, generally designed with their public benefits in mind.
• Pet trusts: set aside money and a caregiver for a pet.

For many families, more money passes by beneficiary form and account title than by the will itself. That's why a beneficiary review is one of the most useful things you can do this month.

What usually passes outside a will

• Retirement accounts, such as 401(k), 403(b) and IRA accounts.
• Life insurance and annuities.
• Bank and brokerage accounts marked "payable on death" (POD) or "transfer on death" (TOD).
• Property owned jointly "with right of survivorship".
• Property held in a trust.

The beneficiary form on file generally controls, even if your will says something different.

Common mistakes to check for

• An ex-spouse or someone who has died is still listed.
• No backup (contingent) beneficiary is named.
• Minor children are named directly. Insurers and plans generally can't pay large amounts straight to a minor, so a court may need to appoint someone. A trust or custodial arrangement is one alternative to ask about.
• Accounts were opened years ago and never reviewed.

Some employer retirement plans require a spouse's written consent to name anyone else as primary beneficiary, so check with your plan.

Making sure there's money when it's needed

Final expenses, debts and everyday bills keep coming while an estate is being settled. Life insurance is one way some families provide money that goes directly to the people they name. The D.I.M.E. calculator gives a rough estimate of what your family might need.

An estate plan isn't only about what happens after you die. These documents cover what happens if you're alive but can't make or communicate decisions, for example after an accident, a stroke or during a serious illness.

Financial power of attorney

Names an agent to handle money matters for you: paying bills, managing accounts, dealing with taxes. A "durable" power of attorney stays in effect if you become incapacitated. It ends when you die; after that, your executor or successor trustee takes over.

Health-care decisions

• Health-care power of attorney (also called a health-care proxy or surrogate, depending on the state): names someone to make medical decisions if you can't.
• Living will or advance directive: records your wishes about treatments such as life support in serious or end-of-life situations.
• HIPAA authorization: lets the people you name receive your medical information, so they can stay informed and help.

Why it matters

Without these documents, family members may need to ask a court to appoint a guardian or conservator before they can act for you, which can take time and money at a stressful moment. Naming people ahead of time keeps the choice with you.

A plan only helps if people can find it and understand it. Getting organized is something you can start today, even before you meet an attorney.

Get organized

• Keep originals in a safe, known place, and tell your executor or a trusted person where.
• Write a simple letter of instruction: where accounts and policies are, who to call, any wishes for a service.
• List your digital accounts. Keep passwords in a secure password manager or with your attorney, not on paper in this worksheet.

Talk with your family

You don't need to share every number. Telling your family who you've chosen for each role, and why, can prevent confusion and hurt feelings later.

Putting it in writing

Estate planning documents should be prepared or reviewed by a licensed attorney in your state. Some people work with a local estate attorney; others use an online estate planning service, which may suit simpler situations. Consider meeting with an attorney especially if you have a blended family, a family member with special needs, a business, property in more than one state or a larger estate. NeoPenn can point you to options, but NeoPenn is not a law firm and doesn't give legal advice.

A sample 30-day plan

Adjust it to your situation; skip or reorder steps as needed.

1. Week 1: fill in the documents checklist and note where everything is kept.
2. Week 2: review the beneficiaries on your retirement accounts and life insurance.
3. Week 3: choose your key people and ask them if they're willing.
4. Week 4: book time with an attorney or an online service to put your plan in writing.

Then put a reminder on your calendar to review everything every few years, and after any big life event.