What this Financial Advisor in Utah Wants Every Woman to Know About Estate Planning
Estate planning affects women differently than it does men. Not only do women generally live longer than men, but they face other financial planning threats that men don’t.
Between the hustle and bustle of everyday life, estate planning may not be on the top of your priority list. But considering what we went through in 2020, there’s never been a better time to make it a priority than today.
Below are 4 estate planning basics every woman should know.
1. A Will and a Living Trust are Not the Same
To truly protect your loved ones, estate planning often includes a will and a trust – not just one or the other.
A will spells out your wishes for after you pass away. If you list all your assets in a will alone, your family has to submit that will to the court when you pass away. It will then go through the often-lengthy and costly process called probate before your loved ones receive their inheritance.
A living trust is different. A living trust helps you avoid probate, which means your heirs are free from these fees and they’re likely to receive their inheritance quicker. A will is a written plan to distribute your wealth, as well as set up other legal arrangements, like guardianship of children, whereas a trust essentially makes sure your assets are allocated according to your intentions.
Also, unlike a will, which doesn’t legally go into effect until your death, a trust goes into effect as soon as you create it, and you can begin to distribute your wealth at any point (during your lifetime or after your death) if you choose. You can also include specific instructions in a trust, such as withholding an inheritance until a certain age or breaking it into segments, which your beneficiaries will receive at different times. There are many reasons you may want to do this. Read our recent blog post: Inheritances: 7 Real-Life Scenarios and 7 Rookie Mistakes.
Here’s how a trust works:
- You open a living revocable trust and move your larger assets into it.
- You are the trustee, which means you have full rights to change anything in the trust as long as you’re alive.
- When you pass away or become incapacitated, a successor trustee steps in and distributes assets according to your wishes.
A few reasons you might want to set up a trust for your family might include managing estate taxes, and more privacy and control over asset distribution than a will offers.
2. It’s Important to be Involved
Regardless of your marital status – single, married, divorced or widowed – it’s important to take an active role in managing your finances and preparing your estate. As a woman, there are several forces that can work against you:
- Women often spend fewer years in the workplace than men, due to their role as a primary caregiver.
- Statistically speaking, women live longer than men, which means many women need to fund a longer retirement.
- Due to the wage gap, women make $0.82 for every $1 a man makes, which means women have less money to set aside for retirement than their male counterparts.
Get involved with your finances and estate planning, so you feel more confident and in control, should these responsibilities fall completely on you.
3. Review and Update Beneficiaries Often
Beneficiary forms trump your will and testament almost every time. That’s why it’s important to review and update these forms regularly. Let’s say you get divorced and forget to change your spouse as the beneficiary of your retirement account. Even if your will says your account should go to your kids, it may still go to your ex if left as a beneficiary.
Common beneficiary documents to review include:
- Bank accounts
- Retirement accounts
- Investment accounts
- Insurance policies
4. Don’t Forget to Appoint Powers of Attorney
A Power Of Attorney (POA) has the legal right to make decisions on your behalf should you become incapacitated. There are two main powers of attorney every woman should appoint: A financial power of attorney and a medical power of attorney.
These can be the same person or they can be two different people depending on your needs. For example, if one child is more financially stable, you may appoint him or her as your financial POA and another as your medical POA.
If you’re not sure who to choose, read our recent blog post: How to Choose an Executor for Your Estate (5 Tips).
Estate Planning Tips for Various Life Stages
Nearly two-thirds of women age 40 to 79 will experience a major financial transition in their lives. Whether it’s from divorce, the death of a spouse, becoming a mother or starting your own business, here are some estate planning tips to keep in mind:
While there are some estate tax exclusions for widows, there are also some tax challenges. The U.S. tax code provides many tax breaks and benefits to married couples filing jointly, but all of those go away when you start filing a single return the year after your spouse passes away. Not to mention, Social Security benefits change.
To minimize your tax burden, work with a financial advisor and tax professional who can help you reduce your tax bill in the time following your spouse’s death.
Whether you’re newly married or have been married for decades, make sure you and your spouse are on the same page financially. If you have kids, discuss what would happen if one or both of you passed away suddenly. Update any legal documents, such as your will, trust and POAs, so you’re both prepared for the unknown.
The first thing you’ll want to do after a divorce is remove your ex’s name from your estate documents. This includes medical directives, POAs, beneficiary forms, etc. Keep in mind that a named beneficiary typically has higher precedence than your will, so if you only update beneficiaries in your will, your ex could still inherit your assets if you pass away.
If your children are under age 18, create a will that spells out your wishes for each child – along with an appointed guardian – if you were to meet an untimely death.
If you have grown children who will inherit your estate after you’re gone, get them involved in the estate planning process, and don’t be afraid to have discussions about how you want things to be handled once you’re gone. The more open you are with communication now, the more prepared they’ll be to handle your estate and honor your legacy.
Many grandparents want to leave behind assets to their grandkids. But the appropriate asset will often vary from grandchild to grandchild. Some tools you may want to use to leave behind assets include:
- 529 college savings plan
- Coverdell Education Savings account
- UTMA or UGMA
At Rock House Financial, our financial advisors in Utah can help you decide what tools align best with your financial plan.
Your First Step
Estate planning can be overwhelming and confusing. At Rock House Financial, we specialize in helping women in transition create an estate plan that aligns with their needs and goals, and we welcome the opportunity to speak with you one-on-one. Contact me directly to see how we can help.