Of all the topics new parents may mull over, most probably don’t spend a lot of time thinking about estate planning, and that’s understandable; young parents in tip-top mental condition don’t often dwell upon their demise. Not to mention, new parents, in particular, have a lot of other things on their minds than planning for their children’s financial future after they’re gone, such as finding a diaper pail that doesn’t reek, trying to get some sleep, or affording childcare. It’s safe to assume that creating an estate plan doesn’t make the top—or even the middle—of new parents’ to-do lists. Still, even though it feels like one more thing to add to your plate if you don’t have an estate plan, it is something you should be prioritizing.
While general enthusiasm for estate planning may be low, a 2019 survey found that 76% of Americans acknowledge having a living will is essential; however, only 18-34% of people actually had one.
The reason for these low numbers isn’t entirely clear. Perhaps it’s because contemplating a time when you won’t be around is, generally, not the way most people choose to spend an afternoon. Unfortunately, the bad news is that we are not immortal—we will all eventually pass on. And when we do the important, albeit uncomfortable, estate planning work while we’re in good health, we make things much easier for our loved ones to manage after we’re gone.
What is an Estate Plan?
Other than the warm feeling in your heart and the peace of mind that come from tidying up your affairs, your estate plan will not benefit you in any tangible way. You will, after all, be gone or otherwise inconvenienced and not exactly concerned about which family member will inherit your good set of steak knives.
Patrick Hicks, head of legal at Trust & Will, a website with a modern approach to digital estate planning, explains that an estate plan is “a comprehensive and complete way to prepare yourself, your assets, and your loved ones for the future. Creating an estate plan ensures that your children, pets, assets, final arrangements, and health care decisions will be taken care of exactly as you want them to be.”
Estate plans are created for your loved ones, and, assuming you’re a decent human being, you’d probably like to spare them as much cost and emotional distress as possible in the event of your death. A proper estate plan is particularly important for new parents who may have not had the time to consider what would happen if one, or both of them unexpectedly pass away or are unable to voice their wishes. If you’d like to assign a guardian to look after your newborn instead of having the court do so, you need an estate plan. If you want to spare your partner the anxiety of wondering what measures you’d like taken if you’re in a coma, you need an estate plan.
You are, after all, the best person to determine your wishes, and by detailing them in estate planning documents, neither the court nor your family and friends will have to assume how you would have handled important matters.
Chris Castellanos, estate planning attorney at Lashly and Baer PC in St. Louis, Missouri, describes an estate plan as “allowing you to express your wishes at some unknown future time when you’re physically or mentally unable to do so.” These wishes usually revolve around the distribution of assets, access to those assets, or instructions for your health care.
A good estate plan is designed to allow you to provide your answers to these questions with as little ambiguity as possible. It is a roadmap for others to follow when it comes to handling your affairs.
A basic estate plan consists of a will, a financial power of attorney, and a health care directive. Outside very small circles, these concepts elicit little enthusiasm for discussion. As dull as they may be to contemplate, however, these components are vital parts of any estate plan, and it’s important to understand how they work.
According to Castellanos, a will “allows you to detail the way you would like your assets distributed, assign a guardian for minor children, and name an executor to manage your estate after you have passed away.”
Without a will intact, a court will assign an executor (more on this function later) to settle your estate who will pay any outstanding debts and distribute assets to your loved ones—also known as your beneficiaries. If you’d like to make certain that your old Xbox goes to your second cousin, or that your daughter receives precisely 70% of your estate, you’d need a will. Otherwise, all of your assets will be divided evenly between your beneficiaries, and that old Xbox could go to your son who’s never been into video games.
“Having a child is the single biggest motivator for adults to create a will,” says Hicks. As mentioned above, a will allows you to assign a guardian to minor children. A guardian is simply the person who would care for your children in the event there is no other living parent to care for them after you pass away. If you do not name a guardian, one will be appointed to your children. This may be a person you would have selected in the first place, like your sister who has promised to raise your children as upstanding Cardinals baseball fans. On the other hand, the guardian appointed to your children may be your brother, a rabid Chicago Cubs fan, whom you haven’t spoken to in a decade. Rather than leaving the selection of a guardian up to chance, it’s best to select one yourself, in a will.
Finally, a will allows you to name someone to settle your estate. This individual is called, somewhat morbidly, an executor. An executor is your representative when it comes to executing your wishes. This person is in charge of protecting and distributing your assets as well as paying any outstanding debts and taxes.
Being the executor of a will is not a ceremonial position. It is a relatively thankless task that takes a substantial amount of time, and you should choose one with those thoughts in mind. Your cousin Randy might be fun to have over at family functions when he has too many vodka tonics and dances around with a lampshade on his head, but he is not the person you want as an executor. Neither is that best friend you’re trying to reconnect with after not speaking for 10 years. Choosing an executor is a business decision. Pick the best person for the job whose judgment you respect and who respects your judgment as well.
Financial power of attorney
Hicks explains financial power of attorney as “the document that names a person as [an] ‘agent’ to act on your behalf. Powers of attorney come in various versions with different start and end dates, and all powers of attorney terminate upon death. The vast majority of powers of attorney will apply while you’re alive but incapacitated. A power of attorney that remains valid while you are incapacitated is known as a ‘durable power of attorney’ (in that it endures your incapacity).”
Incapacitated is the legal term for someone in a coma, suffering from late-stage dementia, or any number of other unpleasant conditions in which they are unable to make legal decisions. For this unfortunate state of affairs, you—or, more precisely, your loved ones—will need a financial power of attorney.
Castellanos says, “financial power of attorney is typically used to manage your finances. It can be structured as a ‘springing’ power of attorney so that it is used only when a doctor determines that you are incapacitated.”
“A financial power of attorney is a component of your estate plan that ensures financial matters in your estate are handled appropriately and responsibly. Knowing that your financial responsibilities, investments, retirement, bills, and everything else in your financial world are in good hands can be a great source of comfort,” says Hicks.
To recap, a will allows your loved ones to manage your affairs after you’ve passed away while a financial power of attorney allows your loved ones to manage your affairs while you’re still alive but incapacitated.
Health care directive
The final component of a basic estate plan is a health care directive. “Similar to a financial power of attorney,” explains Castellanos, “a health care directive is essential in case you are incapacitated. Instead of giving someone the ability to act on your behalf in financial affairs, however, a health care directive describes the medical care you’d like to receive if you’re no longer able to make medical decisions for yourself, and designates somebody to access your private medical information to make sure your wishes are honored.”
Living trusts and probate
Two important issues that a will, financial power of attorney, and health care directive avoid are estate taxes and probate. If you’re concerned about avoiding estate taxes then congratulations, you are currently worth over 24 million dollars and should have a living trust.
According to Hicks, “a trust gives you more control over your plan during your life and after death, helping you avoid the cost and burden of probate.” If you’re like the vast majority of the rest of the population, with an estate that amounts to less than 24 million dollars, there is one other reason to have a living trust and that is to avoid probate. Probate is the process through which the court will settle your estate. It is the means through which debts are paid and assets are distributed.
This doesn’t sound so bad, right? Unfortunately, probate is not a pleasant process. It can take a while, and the average probate lasts about nine months during which your beneficiaries will not have access to any of your assets. Probate is also expensive in that it includes court and attorney’s fees. Finally, probate is public, meaning that anyone has access to how much your estate was worth, how much was passed to your beneficiary designations, and your beneficiaries’ names, birth dates, and addresses.
In addition to protecting your estate from taxes, a living trust keeps your affairs out of probate and settles for the least cost, in the shortest amount of time, in private.
How Much Does an Estate Plan Cost?
The cost of an estate plan can vary from state to state and depends upon the size of the estate. According to NOLO, a will (created by a traditional law firm) for two spouses can cost anywhere between $300 and $1,200. A financial power of attorney and a health care directive will run another few hundred dollars. If you determine that you’d like a living trust, expect to pay at least $1,200 to $1,500, although the price can increase if the attorney does not include billable hours or fees to fund the trust. In total, a basic estate plan without a living trust should run about $500 to $1,400. For the added expense of a living trust and its benefits, expect to pay between $1,500 to $2,700, at a minimum.
Online estate planning services are much more affordable. Hicks explains that “creating a will does not need to be intimidating or costly. You only need some basic information and personal preferences. Most attorneys will charge $500+ for a basic will, but you can create one at Trust & Will.” Wills created on this digital estate planning site offer legally valid documents created by estate planning attorneys that adhere to individual and state guidelines, and they take about 15 minutes to create with prices starting at $159.
However, some online services are typically only appropriate for very simple estates and lack the flexibility of a document that was drawn up by an attorney given their boilerplate nature. Some online services provide access to an attorney but with increased access comes increased cost. LegalZoom charges $89 for a basic will, $99 for a comprehensive one, and $249 for an estate plan bundle.
The costs associated with creating an estate plan are not insubstantial particularly given the new ones you’ve just incurred with a new child in your house. “Instead of thinking of estate planning as an expense,” Castellanos suggests, “consider the price to be an investment in your loved ones.” Alternatively, you can view these expenses as an insurance policy in the event something unfortunate occurs.
Is an Estate Plan Even Necessary?
You may be thinking that you don’t even have enough assets to leave behind after you pass, so why do you even need an estate plan? “Even if you don’t have a lot of assets, your estate plan is a guarantee that everyone will know what your wishes are. Electing a guardian for minor children and disclosing health care directives are perfect examples of why every adult needs an estate plan, regardless of wealth,” Hicks explains.
“Appointing a [legal] guardian for your children is one of the most important tasks you’ll ever do,” Hicks continues, “as your child’s current legal guardian, you know what’s best for them. Stating your preferences in a legal document makes sure the decision is yours, not the courts.”
If you pass away or become incapacitated before formally creating an estate plan and naming a legal guardian for your child, a probate court will make a decision based on what they believe to be in the best interest of your child and ultimately appoint guardianship. “There is also the possibility that your child could be placed in a foster home, even temporarily, while a court evaluates what is in your child’s best interests,” Hicks adds.
Regardless of financial assets, Hicks says that estate planning is crucial for LGBTQIA+ families. “Guaranteed benefits and rights for those in same-sex marriages, domestic partnerships, and civil unions can widely differ depending on local state laws.” He encourages LGBTQIA+ couples to understand what their family is entitled to under the law and make sure their estate plan states their wishes as specifically as possible. “This may be one of the single most essential components that estate planning for LGBTQIA+ couples must address. It’s not uncommon for courts to step in and make decisions about guardianship for children. And often, the family of origin or another biological parent will be given preference. If you share a child, you can avoid misinterpretations about who should step in by formally nominating your spouse or partner to be the legal guardian of any children if you pass away or become incapacitated.”
Now that you’re a new parent, you will be thinking about the future of your new family differently. Ensuring that your child’s future is secured is the most important reason to create an estate plan, and by doing so you can have the peace of mind that the financial needs of your loved ones are taken care of.