Is an Estate Plan Necessary? Part 1.
Short answer? No, estate planning is not necessary in the strictest sense of the word. The correct answer? Yes! It is absolutely necessary. Many people refuse to think about what could happen if they become incapacitated or if they pass away because they feel it is dark or morbid. Some refuse to think about it because they do not want to acknowledge their own mortality. Parents of young children may feel unable to make an estate plan because they cannot agree on who to name as guardian if they pass away while their children are minors. Regardless of your stage of life, estate planning requires making big decisions.
When is the right time to make an estate plan? Jason Mullins, a Financial Advisor who is a Retired Income Certified Professional (RICP®), is frequently surprised when clients come in with no estate plan. As he explains:
“It’s never too early or too late to start planning for your financial future. Incorporating a sound estate plan is one great method to help protect you, your assets, and your loved ones from life’s uncertainties. The area of estate planning is often overlooked when individuals are creating their financial plan and many times becomes an afterthought, when in reality it’s one of the most crucial pieces of a solid financial plan that can reduce risks, costs, and undue taxation to your estate. Remember, your best future is the one you plan for.” Jason Mullins, RICP®.
Failure to make an estate plan can cause your loved ones undue stress and result in disorder or confusion. A loved one’s estate plan, or lack thereof, can be a rude awakening to their friends and family trying to navigate the belongings and assets left behind. A competent estate plan is an act of love to those surrounding you.
#1: An estate plan gives loved ones directions on your exact wishes after you die.
Death can bring out the worst in people. We’ve all heard of families who bicker and fight over material things after a loved one passed away. Perhaps it is due to grief. Perhaps they are hurting financially and finally saw a way out. Perhaps it is because they are greedy. Whatever the reasons, a good estate plan can end these arguments before they begin.
If you have no will in New Mexico, then your assets pass through the intestate provisions of the statutes. Your assets will be divided based on who survives you after your death. Let’s take a look at a scenario where the intestate statutes might alienate close family members. If grandma was married and passed away without a will, then the intestate statutes require that grandma’s spouse receive all of the community property assets and one-fourth of grandma’s separate property assets. Grandma’s living children receive the remaining three-fourths of her separate property. That seems reasonable. But what if grandma had a child who passed away at age 35 leaving behand a ten-year-old grandchild? Would the grandchild be entitled to anything? Not under the intestate statutes. Only children living are entitled to inherit through the intestate statutes. Grandchildren are excluded. What if grandma’s children are all estranged but she has a very close niece? Would the niece be able to receive anything? No, her spouse and estranged children would receive her assets and the devoted niece would receive nothing.
The intestate statutes leave zero room for personalization. A well thought out will outlines your desires and personalizes distributions of your assets. Additionally, creating an estate plan allows you to discuss these issues with your loved ones. I recommend outlining the content of your estate plan with your loved ones immediately once it is created. Surprises rarely go smoothly after you pass away. Letting everyone know what to expect after your death is ideal to decrease the likelihood of fighting and hurt feelings after your passing.
#2: An estate plan gives loved ones authority to act on your behalf.
If you have ever dealt with an aging parent who needs some assistance in paying bills and making medical decisions, you are aware of how frustrating our financial and healthcare system is when needing to act on behalf of someone else. The protections put in place to protect our privacy end up becoming barriers when you need to act on behalf of someone who is unable to act on their own. An estate plan should include a durable power of attorney (POA) and an advance healthcare directive.
A POA will allow an agent to make decisions on your behalf. The person signing the POA, the principal, can outline what types of decision-making power they wish to give their agent. The POA can be effective immediately, or upon the principal’s incapacity. While the POA is useful, it cannot be used for healthcare decisions. An individual may sign an advance healthcare directive which gives the healthcare agent authority to make healthcare decisions if the individual is unable to do so on their own. The advance healthcare directive can include personal instructions on what type of artificial nutrition and hydration you want, how you want your life to be prolonged, nominate who you want to be your guardian should one be needed, and many other specific requests. Additionally, New Mexico statutes provide penalties if a person or company refuses to accept a properly executed statutory form power of attorney or a properly executed advance healthcare directive.
All of the above items will assist in planning for your possible incapacity, but a revocable living trust can do much more. In addition to outlining your wishes and naming an agent to make decisions on your behalf, a revocable living trust can provide a framework for determining if you are incapacitated. Many people understand that incapacity must be determined solely by a physician or a court, but a trust can create a disability panel to make this determination. The panel could include your closest friends, family members, and even attending physician. This gives you more control and prevents court action.
“Is an Estate Plan Necessary? Part 2” will outline a few more reasons why an estate plan is vital for your loved ones.
If you have any questions about estate planning please contact me, Stephanie Woods, Associate Attorney with Davis Miles McGuire Gardner, PLLC at 505-948-5050 or via email found at https://www.davismiles.com/attorney/stephanie-woods/.
If you are in need of a Financial Planner or a Retired Income Certified Professional (RICP®), feel free to contact Jason Mullins. He specializes in retirement income planning. He can be reached at 505-883-2630 or through www.cfsplanners.net. Jason Mullins offers securities through SCF Securities, Inc. Member FINRA/SIPC 155 E. Shaw Ave. Suite 102, Fresno, CA 93710 • (800) 955-2517 •Fax (559) 456- 6109 and Investment Advisory Services through SCF Investment Advisors, Inc. SCF Securities, Inc. and Creative Financial Strategies LLC are independently owned and operated. www.scfsecurities.com. Neither SCF Securities nor Creative Financial Strategies are affiliated with Davis Miles McGuire Gardner, PLLC. Creative Financial Strategies LLC does not offer legal or tax advice.