Before any estate plan can be prepared, an accurate understanding of your income, expenses, assets and liabilities is essential. (UBS)

There are as many follies of youth as there are youth to carry them out. In estate planning, these follies often take the form of excuses for the failure to understand the importance of estate planning:

  • “I am too young to plan now.”
  • Translation: “I have a long life ahead of me. I’ll do it later when I am older.”

  • “I’ll get to it, but right now I’m too busy.”
  • Translation: “Get off my back. It’s just not a priority for me now.”

  • “I’m healthy. Nothing’s going to happen to me.”
  • Translation: “I am invincible.”

Add minor children to the mix and these excuses remain, albeit with a pang of guilt arising from the haunting knowledge that it probably is something a responsible parent should do.

“Failing to plan is planning to fail.”
The adage is true: the risk can be tragic yet the unintended results may be entirely avoidable. The foundation of a solid estate plan is a solid financial plan. For young families, the two are intricately intertwined because they both address the same core issue: uncertainty for the future. Combined, they represent a solid wealth management plan.

Knowing what you have
Before any estate plan can be prepared, an accurate understanding of your income, expenses, assets and liabilities is essential. Its expression is in the form of a simple budget with balance sheet. A comprehensive financial plan takes that further by presenting the budget and balance sheet in a financial context with your goals, risk tolerance, savings plan and investment strategy. An effective estate plan nestles the financial plan in a life context. When executed properly, it all works together in harmony.

Determining your responsibilities
Whom you need to protect may seem simple at first: spouse and children. A careful reflection might give rise to the inclusion of others to the nuclear family mix, such as parents, siblings, in-laws, business partners, employees and charities. Furthermore, a look to the legal nature of members of the modern family may reveal different legal relationships that may require different planning strategies. Consider these questions:

  • Is your “life partner” your spouse, your domestic partner or your “happy attachment?”
  • Are the children yours (natural born/adopted/present marriage/previousmarriage/no marriage) or your spouse’s children (previous marriage/nomarriage) whom you have not adopted?

Although love and affection may be blind to legal status, estate planning may not be.

Protecting your surviving spouse
Spouses may see each other as equal partners to the marriage, yet the elements that make up that “equality” may be very different from one spouse to the other. Reflect on the following questions:

  • What assets and/or liabilities did each spouse bring to the marriage? Did one spouse previously inherit property? Did the other spouse carry large student loans?
  • Are both spouses employed outside the home? Are their incomes similar or significantly different? Is one spouse employed inside the home as a homemaker/caretaker of children or others? Does one spouse earn income from employment? Does the other spouse earn appreciation from volunteer work?
  • What unpaid work does each spouse do to maintain the family and the home? Could one spouse do the other spouse’s domestic work or would the domestic work be required to be hired out?

An understanding of these answers will aid in determining the degree of support needed for the surviving spouse.

Basic estate planning documents
Regardless of your income or the size of your estate, the following documents comprise a basic estate plan:

1. Last Will and Testament

2. Revocable Living Trust

3. Medical Power of Attorney

4. Financial Power of Attorney

5. HIPAA Authorization

6. Advanced Directive/Living Will

Main contributor: David R. Mietty, Wealth Planning Strategist

Read the report Wealth Planning Insights: Estate planning for young families

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