The most important estate planning documents that everyone should have are:
Here’s a little description of what each one is:
Will – A document with written instructions directing how certain portions of your assets will be disposed at death.
Durable Power of Attorney (for financial matters) – A power of attorney is a written document that authorizes another person to act on your behalf. So if my husband is my power of attorney, he can make decisions on my behalf like invest my assets or pay for my expenses. However, if I become incapacitated, he no longer has that power. But with a durable power of attorney, he can still make decisions on my behalf even after incapacity.
Durable Power of Attorney (for health care/medical proxy) – A medical proxy is document authorizing another person to make health care decisions on your behalf when you are no longer able to understand or communicate your own desires regarding medical care.
Living Will – A living will is a document that allows you to state in advance what life-sustaining medical measures related to hydration, respiration, and nutrition should be taken by a health care provider if you are incapable of consenting to treatment.
This year, my husband and I focused on getting our life insurance in place. Now that that’s almost done, the next item on our financial to-do list is estate planning. We probably won’t tackle estate planning this year for two reasons:
- It can be pretty expensive – Getting your estate planning done can cost several thousand dollars. We spent a lot of money this year on the home remodel and we’re just starting to build up our emergency fund again so we’re not ready for another large expense yet.
- We’re hoping to have kids in the next few years and having kids is one of the triggers for updating your estate plan. It would be kind of a waste to pay a couple thousand dollars now to get it done and then have to redo it in a year or two once our first kid is born.
California is a community property state.
Community property means any property (including income and debt) acquired by one spouse is considered equally owned by both spouses even if only one spouse’s name is on the official title. For instance, if husband and wife buy a house and husband pays for 100% of it and only his name is on the title, the property is still considered 50% owned by the wife because it was bought after they got married. This comes as a huge surprise to my newly married friends who thought they were keeping their money separate by maintaining separate accounts.
A few exceptions to this are what’s called Separate Property. Separate Property is property acquired by either spouse before marriage or by gift or inheritance during the marriage. So if husband bought a house before he got married, that is considered Separate Property and wife does not own any of it. And if husband’s mom decides to gift him a new car, the wife, again, does not own any of it regardless if it was given to him before or after marriage. And if husband’s mom passes away and he gets an inheritance, the wife does not own any of that either. The exception to this exception is if you put money you made after marriage into theses accounts. So if husband bought a house before marriage (Separate Property) but used money he made after marriage to pay the mortgage, it will most likely end up being Community Property.
A lot of us haven’t taken the time to create a will yet. So what happens to all our assets when we die?
When we die without a will, it’s called dying intestate, which basically means the government has pre-decided how your assets will be split up.
If you are not married and don’t have kids – your assets will go to your parents. If your parents are deceased, your assets will be shared equally by your siblings. If you don’t have any surviving relatives, your assets will go to the state.
If you are married but don’t have kids, then 1 of 3 options will take place:
1) your spouse will get everything
2) your spouse will get a portion and your parents and siblings will get a portion
3) your spouse gets all your personal property (car, furniture, etc.) but has to share real property (house, condo, etc.) with your parents and siblings
If you are married with kids – your spouse will get 1/3 while your kids share the remaining 2/3 equally. If you only have one kid, then 1/2 goes to your spouse and 1/2 goes to your kid.
We should all have a valid will at some point but if you don’t like the way the government plans on splitting up your assets, you should probably get one sooner rather than later!