After the April 2016 death of 57-year-old entertainer Prince, many people were surprised to learn that he had no will. He had been so deliberate in how he handled other aspects of his life, especially his career. Yet, by delaying this decision, he gave up control over everything he’d spent decades building. Now a Minnesota judge is tasked with deciding how to distribute Prince’s estimated $200 million estate among his six siblings.
Don’t leave important decisions like this to the courts. Some basic steps will ensure the choice is yours and help your loved ones avoid wasted dollars and unnecessary hardship.
For starters, there are three types of legal documents that will ensure your financial affairs proceed in accordance with your desires:
Last Will and Testament
Wills dictate how property is distributed based on an individual’s wishes and is one of the main components of every estate plan. They also can be used to designate a guardian for minor children. Selecting a guardian is incredibly important and sometimes overlooked. In addition, the executor of the will (also known as a personal representative) agrees to ensure that an individual’s property is passed to the beneficiaries according to his or her final wishes.
Durable Power of Attorney
This document enables a predetermined agent or person to act on your behalf if you’re unable to do so yourself. A power of attorney (POA) can give the agent (whom you select) the authority to enter into real estate and other financial transactions and make other legal decisions as if he or she were you. If you don’t create a POA document, a court may appoint a “conservator” or decide what happens to your assets should you become incapacitated.
Advance Directive for Health Care
This is a form in which a person lists his or her health care preferences in detail to include treatment, medical testing and care options. An individual can designate a POA to make health care decisions; otherwise the court may appoint a guardian. (If you have children older than 18, it’s advisable to have them complete an Advance Health Care Directive for both their home state, as well as the state in which he or she attends college.)
These documents provide the foundation for an estate plan and help you stay in control of your financial, legal, and health decisions. Once you complete them, be sure to review and update them regularly, particularly following a major life event or change in residency.
In addition, there are a few things to understand about beneficiaries. Through beneficiary designations, some types of assets will pass to your heirs without being dictated by your will, such as your 401(k) plans, IRAs, Roth IRAs, other retirement plans, and insurance policies. As such, it is necessary to name a primary and contingent beneficiary on such accounts. Named beneficiaries should be over the age of 21 and mentally competent.
Think through your beneficiaries carefully and, like the documents mentioned above, be sure to review them periodically as well. When you die, if there is a discrepancy between the wishes stated in your will and the beneficiary designations you’ve made for any of your plans or policies, the beneficiary designations will be what is honored.
We’re Here to Assist You
Help your loved ones avoid an expensive and cumbersome estate resolution like Prince’s heirs are facing. If you have questions while developing or reviewing your estate plan, don’t hesitate to use us as a resource. Our advisors will be happy to discuss this with you and refer you to an estate planning attorney.