Marriage is one of the most thrilling and transformative events we will experience. As we begin this chapter of our lives, there is a lot that has to be considered: Where are we going to live? How will we organize our finances? How often must we see our in-laws? However, one important topic that is often overlooked is estate planning.
While nobody wants to think about death, there is the old adage that, “The two certainties in life are death and taxes.” Creating an estate plan protects you and your loved ones when those certainties become your reality. There are several misconceptions surrounding estate planning for young couples, and I believe it best to explain why estate planning is a necessary step to take after the wedding day is over and the proper steps to take to ensure you and your loved ones are protected.
THE IMPORTANCE OF ESTATE PLANNING
There are a number of reasons why newlyweds don’t think estate planning is necessary for them at this stage in their life. This can include the lack of children or significant assets, conjoined bank accounts, or positive health. However, even if all of these are true, the necessity for proper estate planning doesn’t go away.
- Designating your Spouse as Your Beneficiary: Whether it be a bank account, life insurance policy, or your car, proper estate planning can ensure that your real and personal property go to your spouse. Most people would assume that if you pass away, your spouse automatically gets everything you own. However, that isn’t necessarily the case. For example: In North Carolina, if you pass away with no children and with at least one parent alive, your spouse will only receive up to $100,000 of your personal property assets. The remaining personal property assets would be split 50/50 between your spouse and your parents. Estate planning allows you to ensure that your assets go to your spouse, or anyone else you so choose.
- Preparing for Healthcare Emergencies: No matter if you are healthy or not, it is impossible to predict what the future may hold. A medical emergency can arise at any time. Estate planning allows for you to designate someone to make medical decisions for you if you are incapacitated. Without your medical preferences down on paper, your spouse or loved ones could make healthcare decisions on your behalf that you don’t agree with.
- Taking Stress Out of the Probate Process: Currently, the average estate takes approximately nine months to go through probate. Without proper estate planning, your surviving spouse may face a probate process that could last well over a year. Having estate documents in place that designate where your assets go can drastically cut down on the length of time your surviving spouse will have to deal with the stress of probate.
- Avoiding Last Minute Estate Planning: As previously mentioned, we can’t foresee what the future may hold for our health. The only thing that can make estate planning worse is a medical diagnosis that leaves you uncertain about the future. I can name several circumstances in which a client came in saying that they had recently been diagnosed with a disease and that they need to prepare for when they pass away. Estate planning becomes a lot more real and stressful when planning for your death becomes a lot closer. It is a lot less stressful to plan for the hypothetical, than to plan for the known reality.
STEPS IN ESTATE PLANNING FOR NEWLYWEDS
Now that you understand some of reasons why estate planning is necessary when newly married, here are the key steps and documents we usually recommend our clients have prepared for them.
- Will
Everyone knows the general definition of a will so I won’t go too in depth on this. Basically, a will outlines exactly how your assets will be distributed upon your death and who will make sure your wishes are carried out. One of the great benefits of a will is that it can be as specific or general as you see fit. Some of my clients simply say they want everything they own to go to their spouse, whereas other clients want 20 different items to go to 20 different people. Overall, a will is an easy way to protect you and your loved ones.
- Power of Attorney (POA)
A POA gives your spouse the authority to make decisions on your behalf if you are incapacitated. In North Carolina, we recommend couples get a Health Care Power of Attorney (HCPOA) and a Durable Power of Attorney (DPOA). The HCPOA allows your spouse (or whoever you designate) to make medical decisions for you if you are ever incapacitated. You can allow them to make certain decisions, while restricting them from making others. A good example of this is restricting your spouse from withholding artificial nutrition or hydration. Having this document is crucial to allow your spouse to see that your wishes are carried out even if you are unable to make those decisions.
Similarly, the DPOA ensures that your spouse can have access to your financial accounts and make financial decisions if you are unable to. Before you say, “We are already on each other’s bank accounts,” let me discuss a much more common concern we have that this document will address. Let’s say that your wife has gone into a comatose state after you neglected to do the dishes like she asked. While she is incapacitated, you are trying to pay some bills but realize that the phone bill is in her name only. Without a DPOA, the phone company may refuse to accept payment or even talk to you because you aren’t on the account. While this may seem farfetched, it happens all the time. In a world that has moved towards subscriptions for everything, it is almost impossible to have both spouses on every account. A DPOA can be a great solution.
- Consider a Trust
Up until a few years ago, trusts weren’t even considered by most people. Most people thought them to only be necessary for the ultra-wealthy. However, trusts have become increasingly popular. A large majority of people that come into my office have already been told they need a trust, or believe they need a trust. I can’t blame them. Everywhere you look, people are talking about how having a trust is the best way to estate plan. However, for the vast majority of people, there isn’t a need for one. The two main benefits of a trust are that it allows you to avoid probate and to save on estate taxes. In North Carolina, there is no estate tax. Unless your estate is over the $13.61 million Federal Estate Tax Exemption, you won’t receive the tax benefits from the trust. I have also found that clients tend to not update their trust with assets they accumulate throughout their life. An example of this is a creating a trust in your 20’s. You may have a 401(K), checking and saving accounts, a house and a car. Throughout your life you accumulate more assets. Maybe you have a couple classic cars (I recommend a 1977 Pontiac Trans Am), a vacation home and a boat. However, you forget to title the cars in the name of the trust. This forces you to go through probate process. Just like that, the benefits of the trust are gone.
One last downside of a trust is the cost. A trust can easily cost you ten times as much as a will. It is a high price to pay for a document that may very well not help you. I never want to take a trust off the table for someone, but in most situations, I find that a client may be better off with a simple will.
CONCLUSION
Estate planning may not be the most exciting of topics, but it is an important step to take as a newly married couple. Ensuring that your new spouse is protected if you become incapacitated or die is a necessary step that is much easier to take before any health issues arise. Not only does this allow you both to be protected, it promotes in depth discussions between the two of you about your wishes. When I was first married, my wife was dreading the idea of estate planning. However, after we started discussing how we wanted our estates to go, she wanted to have discussion after discussion about funeral arrangements, burial sites and headstones. While it is possible she was getting a little too excited with the planning, having our estate planning done was a great way for us to get to know each other a little bit better. Taking the time to sit down with your spouse to talk about your wishes and having an attorney help you create an estate plan tailored to you can save you so much stress and worry later in life.
