Last week I wrote about how I updated my personal financial plan and life insurance after the birth of our daughter. This week I wanted to talk about another all too often forgotten important step for new spouses and parents…..estate documents.

It is a common misconception that unless you are a multi-millionaire, you don’t have an estate. This couldn’t be further from the truth. In fact, if you have $1 in your wallet, you have an estate. Even then, there are other critical legal documents that nearly everyone should have.

Quick disclaimer, I am not an attorney, but as a Certified Financial Planner ®, I read and ensure my clients have the appropriate legal documents and then after careful coordination with my client’s attorney, I make sure that these documents are coordinated with their financial assets by having the correct beneficiaries and titling.

You would be shocked how often I meet newly married couples who still have their parents or siblings as beneficiaries of their accounts. It is even more surprising when I read about celebrities who failed to take the time to draft even the most basic of legal documents as Aretha Franklin failed to do.

Truth be told, I made sure to “practice what I preach,” so my wife and I created a Last Will and Testament, Durable Financial Power of Attorney and Advance Medical Directive for each of us after getting married. We drafted these documents by planning for the care of our future children.

We spent $750 and drafted our legal documents. During this process we updated our beneficiaries, made decisions about who would care for our daughter for us and who would make financial and medical decisions if we were unable to. While these decisions were awkward at times, imagine deciding which grandparent or sibling should be the guardian over your children; we both felt relieved that the decisions were made.

While you should use an attorney, many people are also drafting these documents online via sites like www.legalzoom.com. However, it is important to be very careful since every state has their own requirements as to what constitutes a legally binding document. I highly recommend using an attorney and adding this professional to your team of trusted, family advisers.

Let’s talk a little about what each of these documents does:

  1. Last Will and Testament: The basic purpose of this document is to determine who you would like to receive your assets when you pass away. This could be your bank account, coin collection or family piano that has been passed down for generations.

Most people think if they have a Will, they are done. Unfortunately, too many people don’t realize that the will DOES NOT determine who receives any accounts with a beneficiary. That means the beneficiary form on your IRA, Roth IRA, 401(k), 403(b), life insurance policy, etc. overrides your will! Without a will, as Aretha’s family will find out, state law determines what happens to your assets, this is called intestate succession. Did you know, in Maryland, if you pass away with a spouse and minor children, your spouse only inherits ½ of your intestate property and the children inherit everything else!

Another point is that a Will is critical for new parents because it allows you to control who would be the guardian for your child. If you do not decide this, a court will and who likes the judicial system to determine who would care for your child?

  1. Durable Financial Power of Attorney/Advance Medical Directives: These documents allow you to designate a person to make financial and medical decisions for you if you are incapacitated but still living. I personally trust my mother to make smart financial decisions, but my sister is more sensitive and closer to the healthcare profession, so I trust her with healthcare decisions. These unique family dynamics are reflected in my documents.

In some instances, trusts can be appropriate. There are trusts that are created within your Will. There are separate, stand alone trusts. Some trusts are revocable, and others are irrevocable. This conversation is beyond the scope of this post but may be needed in your situation.

Planning in your 30’s and 40’s can be complex. Financial Planning is not just about managing investment portfolios. More importantly it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on.

Steve is a CERTIFIED FINANCIAL PLANNERTM and Partner at Abel-Financial Management. He can be reached at sstern@abel-financial.com or at 410-307-1202.

Sources: https://www.nolo.com/legal-encyclopedia/intestate-succession-maryland.html

https://www.wealthmanagement.com/estate-planning/aretha-franklin-died-without-will

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