One of the most frequent questions that I’m asked as an estate planning attorney is, "How do I know if I need to make an estate plan?” Unfortunately, since everyone’s personal and financial situations are different, there's not one simple answer.
The first place to start is to take a look at your family situation. If it fits into one or more of the following personal “red flag” categories, then, regardless of your net worth, you need an estate plan.
You have minor children. When it comes to minor children, there's no time like the present to start making your plan. There are two areas that need to be addressed when planning for your children in the event of an untimely death: Who will take care of the children until they become adults, and how their care and education will be paid for until they become adults. Without a plan, a judge will decide these important matters.
You have problem children or other beneficiaries. Are you concerned about a child or other beneficiary squandering their inheritance, or perhaps being unduly influenced by an overbearing spouse after your death? Or how about a beneficiary losing their inheritance in an ugly divorce or lawsuit? These concerns can be addressed in your estate plan.
You have a disabled child or other beneficiary. Regardless of the value of your estate, you must put a plan in place for a disabled child or other beneficiary. Otherwise, the beneficiary will lose their government benefits and instead your estate will be depleted to pay for the beneficiary’s care.
You don't have any children. This is the group I find the most difficult to plan for since they usually don’t have any “natural” objects of their affection. The bottom line is that without a plan, the intestacy laws of the state where you live at the time of your death will make a plan for you, and in most cases it won't be the plan you would have chosen for yourself had you taken the time to make a plan.
You're in a second (or later) marriage and/or have a blended family. If there is one group in desperate need of estate planning, it's couples involved in second marriages with blended families. There are all sorts of pitfalls and traps for these couples, ranging from failing to understand the state laws which prevent one spouse from disinheriting the other (called "elective share" laws), to improperly titling assets so that one spouse’s children inherit everything and the other spouse’s children get nothing. Planning now will prevent resentment and costly lawsuits later.
Your spouse has recently died. If you and your spouse had all of your assets jointly titled, and/or you were the beneficiary of your spouse’s life insurance and retirement accounts, then, fortunately for you, probate wasn't necessary. For your estate, however, this won't be the case since now all of those assets are yours and yours alone. Now is the time for you to sit down with an estate planning attorney to discuss your options for making the transfer of your assets to your heirs just as easy as it was for you.
You've recently divorced. If you didn't have an estate plan before the divorce, then you should make one after to insure that your assets go where you want them to go and you and your former spouse have complied with all of the terms of your property settlement agreement. In addition, now that you have assets titled in your sole name, you'll want to create a plan that addresses both mental disability and death.
If after reviewing these personal red flags you still believe that you aren't in need of an estate plan, then you should take a look at the financial red flags to see if you fit into one of those categories.
