Even if you believe you have a modest net worth, without an estate plan, your assets could be dispersed in ways you never imagined. And your heirs would find it difficult or impossible to get what you intended for them. Estate planning documents such as wills, trusts and healthcare directives cover more than money. They stipulate how you want your assets spread and how you’d like to be cared for if you’re incapacitated.
Assume you have $200,000 in your 401(k) plan and bank accounts. You can preserve that for your children with a will – the first step in estate planning. Without a valid will, you’ll die intestate. And that gives the government the right to divide what you have left behind.
Estate planning for someone of modest means may be more critical than for the extremely wealthy person. Why? The margin for error is much less.
What can dying without a valid will mean? Assume you have no children or spouse at death. Your assets will go to your parents if they’re alive. If they’re in poor health, your assets could be confiscated for their health care. If, however, you have a will, your assets could be directed to another person or charitable entity; your parents would not inherit your assets, and they might even qualify for Medicaid. For a few hundred dollars, you can draft a will and decide where your money goes.
Here’s another example: Let’s say you have $300,000 to give your only child who is 21 years old. But if you die, do you want him to inherit the money in one lump sum? Seventy-five percent of inheritances are completely gone in five years. You want to leave your child with a head start on growing a large asset. But you need a distribution plan for him or her.
Unfortunately, most wills give children who are 18- to 21-years-old a substantial sum of money. Most young adults aren’t mature enough to manage a large inheritance. When I ask people why they’ve structured their will in this way, they often say, “Our attorney told us to do this.”
So find an attorney or financial planner with estate-planning experience. Ask them what their philosophy is about passing wealth to children.
A good law firm or financial planning firm will really listen to you; they’ll put your interest ahead of their service. Ask whomever you meet with to provide three or four references before you begin working with them. Anyone who truly wants to help you will not balk at sharing the names of people they have helped.
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