Estate planning essentials: 5 key elements to help prepare for the legacy you want to leave

Perhaps you’ve heard the words “estate planning” and thought it wasn’t about you because you don’t have what you believe is an estate. In fact, everything you own yourself or co-own when you die is considered an estate. So for virtually everyone, estate planning is an important process to understand and put into play.

Through careful planning, you can feel confident your assets will go to the people you choose, at the time you choose, with as little impact from taxes as possible. Deciding how your assets will be distributed means you won’t need to rely on others, or the courts, to do this for you. Even the smallest personal items, such as a ring or watch, can be left to a particular person. However, those wishes need to be clear.

“We tell our clients all they have to know is their wishes for their assets,” says Theresa Wenske, a Thrivent financial advisor in Columbus, Nebraska. “In partnership with their lawyer and tax advisor, we can run them through the entire process. There’s no right or wrong way to distribute assets. It’s their money, and we just help guide them through the process.”

Estate planning helps ensure your intentions will be honored. There are five key elements to consider: will, power of attorney, health care or medical directive, trusts and beneficiary designations. Understanding each can help you make decisions that reflect your values and priorities.

A will is a legal document that provides instructions on how your assets are to be distributed after you die. Each state has laws to ensure these legal documents are honored. When a person dies without a will (this is called dying intestate), state law determines who gets their assets.

Relying on state law to determine the distribution of your assets can be divisive for family members, time consuming and expensive. Unfortunately, Wenske has seen families suffer needless anguish when clear directions weren’t written down in a legal document. “Sometimes the smallest things can cause the biggest problems,” she says.

To create a will, it is recommended that you work with a state-licensed attorney, preferably someone you know and trust, and who has experience drafting wills. This will help ensure the attorney is up-to-date on the laws in your state, and the document should meet all the necessary requirements.

Your will can name the guardian(s) for minor children, and the executor—someone you trust to administer your will. It also can provide guidance on how any debts are to be paid as well as wishes for funeral arrangements. Spending a few more dollars on your will today can result in financial savings—and reduced mental stress—for your loved ones in the future.

This legal document names someone of your choice—a close family member or friend—who can act on your behalf to make financial decisions for you in the event you’re incapacitated and unable to give directions or take action. The person you designate as able to act on your behalf is known as an “Attorney-in-Fact.” A power of attorney document can be limited to financial matters or can include health care decisions.

Power of attorney documents stipulate what your Attorney-in-Fact can and cannot do, and they give financial institutions permission to follow this person’s instructions. It’s important to consider setting up power of attorney early because an unexpected accident or medical event could leave you unable to make decisions, in turn making it impossible to create this document.

“Power of attorney allows you to choose who handles your affairs if you can’t,” says Matt Dickerson, Thrivent advice services consultant. “This document can take effect immediately if you choose, or when you are incapacitated, to act on your behalf when you need it. Without this document you don’t get to choose, and the state will appoint a guardian.”

Both financial and medical powers of attorney are important. These documents help ensure that your assets and your health decisions are being handled by a person you trust to make choices that align with your needs, wishes and values. Because a power of attorney is a legal document, you should work with an attorney to set up these documents.

This document tells your family what types of care you want or may need and don’t want if you’re unable to communicate your wishes. Your medical power of attorney then can make medical decisions for you when you can’t.

It’s important to think about the types of health care you want or may need during all stages of life, but particularly near the end of life, and the quality of life you desire. “Do you want health care professionals to perform extraordinary attempts to prolong your life, such as use of a ventilator or feeding tube? Do you wish to be resuscitated? These are good questions to consider and discuss with your spouse and other family members,” says Melissa Knippa, Thrivent financial advisor in Austin, Texas.

For example, an advanced medical directive with a “do not resuscitate” or “no life support” order in place can honor your decision to forego extraordinary attempts to prolong your life. It also takes the pressure off the person you authorize to make medical decisions for you.

You can create a health care or medical directive with your health care provider, or you can have your attorney draft this. It’s a simple process to create these documents, and they should be filed with your will and given to your physician, lawyer, family members and especially the person you authorize to act on your behalf for medical decisions.

“A trust is a legal entity that allows a trustee to manage and hold assets on behalf of beneficiaries. A trust allows the grantor to specify how and when assets are passed on to beneficiaries,” says Dickerson. For example, a trust can be established for each minor child and sets rules about how and when assets are transferred, such as when they reach the age of 21.

There are two types of trusts, revocable and irrevocable. You still own and continue to control assets in a revocable trust. However, assets in an irrevocable trust cannot be changed. Irrevocable trusts are often used to move assets out of one’s ownership permanently due to tax planning considerations. Work with an experienced attorney to understand if a trust is suitable for your situation, and to create a trust that meets your estate planning needs.

For the types of assets where beneficiaries are named, such as a 401K (retirement account), an individual retirement account (IRA), life insurance payout or annuities—they are immediately transferred to and available to the beneficiary upon your death.

A beneficiary designation supersedes any will you have in place, and changing beneficiary designations is easier than changing a will.

Anyone can be a beneficiary, but tax implications should be considered. If a minor is a beneficiary, you should consider what extra measures may need to be taken regarding control of assets for the minor until he or she reaches adulthood.

It’s not enough to create these estate planning tools. It’s strongly recommended to review these documents every few years to ensure they are up-to-date and reflect your current wishes. Review is also critical following major life events, such as marriage or divorce. Talk with your Thrivent financial advisor about a beneficiary review, and work with your attorney to revise any legal documents that may need updating.

Gary and Ginger Causey of Midland, Texas, began their estate planning by itemizing their estate, including the current value of their assets and their potential future value 10 or 20 years out. Five years ago, they created a revocable trust, and more recently they partnered with Knippa for advice on financial products.

“Melissa reviewed our situation and gave us a lot of good information and things to consider,” says Gary. “We purchased life insurance, which is like a whole life policy for when the last survivor in a couple dies. We’re also looking into survivorship life insurance. It’s an evolving process, but after thinking about this for a year, we’re in a good place.”

Gary recommends starting early, knowing your estate and understanding how you want to divide your assets between, for example, your family, church and other charities. Also, if you need life insurance, get it when you’re younger and generally healthier.
 

Thrivent financial advisors can help families review their beneficiaries to ensure they still reflect current circumstances and wishes. They also can provide guidance on tax-wise ways for families to structure their charitable gifts, potentially reducing taxes and increasing gifts to charities, helping you focus on what matters most to you.

This 46-page workbook-style guide offers fill-in-the-blank forms, answers to common questions, and a glossary of terms that can help you prepare for a conversation with your estate planning professional.