While estate planning might not exactly be a topic you’re looking forward to facing, it’s a crucial part of financial planning to consider. Let’s face it: Life events happen whether we want them to or not, and sometimes, these situations feel too overwhelming to comprehend, such as who will make end-of-life decisions for you.
One common misconception is that estate planning is just for the rich — but just about every adult can have an estate plan.
Time to get started? Let’s go over the definition and importance of estate planning, the average cost of estate planning, who might need an estate plan, and how to create a will.
Estate planning, defined
Estate planning means legally arranging for how you want your estate to be handled after you die or if you become incapacitated and unable to make critical decisions on your own. It might sound like estate planning only applies to property, but that’s not the case. An estate-planning checklist typically includes:
- A will. This document describes how you want your assets to be distributed and details any special instructions that you want carried out. A will is a valuable consideration for any adult.
- A durable power of attorney. A durable power of attorney is a document that formally designates someone to take care of your affairs, including in the event that you’re alive but unable to make decisions on your own.
- A medical power of attorney. This is someone who has the authority to make major medical decisions for you when you cannot make them yourself. These also include end-of-life decisions.
You might not need a comprehensive estate plan right when you turn 18, but since turning 18 typically marks adulthood, that’s a good point at which to consider designating an agent through a medical power of attorney. Your loved ones who have just turned 18 may also wish to designate an agent who can make medical decisions on their behalf if they become incapacitated. Without this precaution, parents or guardians may be unable to act for them in the event of a medical emergency.
What’s the point of an estate plan?
Creating an estate plan makes it more likely for things to happen the way you would want them to in a given situation, especially in instances of life-or-death. An estate plan might be imperative in the following circumstances:
- Growing family: A primary responsibility of parents is to care for their children. As your family grows, you can specify a guardian for your children in case you or your spouse can’t be there. Writing a will or trust may safeguard your children’s inheritance and may secure their care through adulthood.
- Prior to unexpected life changes: Unexpected things happen in life. An estate plan helps you do your best to prepare for it. For example, if you divorce your spouse, important documents will likely be revised to include new beneficiary designations.
- Long-term care considerations at midlife: At midlife, it’s a good idea to consider long-term care issues, especially before the realities of health issues enter the picture.
- During your golden years: Deciding on a durable financial power of attorney, assigning healthcare proxy, obtaining HIPAA release for caregivers and updating a will as needed can be important prior to your retirement years.
Estate planning is a serious undertaking, but a very important one for your peace of mind as well as for your loved ones. You don’t want to be ill-prepared for issues that might come your way in life.
Why is a will important in estate planning?
A will is the standard document in many estate plans and can help save your loved ones money, time and stress. The will usually names an executor, or personal representative, to administer the distribution of your assets as you intend — in other words, the person responsible for wrapping up your affairs. Your will can also appoint guardians of minor children who will oversee their custody and care until they become adults.
It also typically allows you to decide who does and does not get your assets and property, so someone who shouldn’t get your money doesn’t. This also lowers the potential for disputes over your assets, leaving funeral instructions and supporting your favorite charities or other causes.
How much does estate planning cost?
In some instances, attorneys may prepare a simple will or power of attorney for as little as $150 or $200, while other attorneys may charge $250, $350 or more per hour. However, the cost will depend on a variety of factors, including the attorney’s experience and the area of the country in which you live. For example, you’ll likely pay less in Nebraska for estate planning than you might in California. You can shop around to get the best price.
Do I need an estate plan?
The answer might seem complicated, but it’s actually quite simple. Anyone who wants their assets transferred to a loved one after their death should consider establishing a formal estate plan. Doing so may make it easier to carry out your wishes and help your loved ones identify how to handle your estate, which is especially important if they’re grieving your loss.
Estate planning: Is it only for the rich?
You might equate the term “estate planning” to just the super wealthy. However, you may have more assets than you realize. For example, you might be a homeowner. If you want to leave your house to your child, it’s important to identify that wish in your estate plan.
Furthermore, estate planning goes beyond just your personal belongings. A medical power of attorney and a living will make it more likely that your very final wishes are upheld and your end-of-life needs are enforced.
Can I do my own estate planning?
It’s a DIY world these days. Watching someone else do it online may lead you to believe that you can prepare a will on your own as easily as you can remodel a bathroom. However, just as you might lack the plumbing skills to remodel a bathroom, it’s important to recognize that a DIY provider for estate planning may also not offer the best choice because there might be considerations you don’t think of — such as providing for a disabled relative after your death — that deserve careful legal considerations.
If you have modest assets in your own name and plan to simply leave your assets to a closest living relative, you may get away with using an online platform. However, it’s best to consult a trusted legal advisor because making a bad choice can have negative consequences, including for your surviving relatives.
When should I start estate planning?
As soon as you become a legal adult, it’s a good idea to at least consider an estate plan.
After you create an initial estate plan, here’s a rule of thumb: Every three to five years, or anytime you experience a significant life change or milestone, it’s a good idea to consider updating your estate plan. Here are just a few things that might trigger an “edit” of your estate plan:
- Getting married or divorced
- Adoption of a child
- Birth of a child or grandchild
- When you receive an inheritance
- When you purchase property
- As a result of a negative health diagnosis
- Starting a business
- Opening a new investment
- Death of your initial choice of executor
A change in healthcare or finances (acquiring or selling property, for instance), or even a relationship fallout with a friend or family member, may trigger the need to make updates.
Documents for estate planning
You’ll need to gather some documents in order to create an estate plan. These typically include:
- A net-worth statement. List all your larger assets and any special gifts you would want to make. Include liabilities as well as assets.
- Assess your life insurance and bank accounts. Correctly titling and listing beneficiaries on certificates of deposit (CDs) as well as on money market, savings and checking accounts can smooth the transfer of these assets.
- Name an executor or co-executors. An executor is the person you want to administer your estate. If you have children, you may consider naming a guardian.
- Think about what you might want to say. If you have a personal communication to pass along, such as expressions of affection and personal values, include these sentiments in your estate plan.
A lawyer can help you determine other documents you may need to have before you get an estate plan in place.
How to create an estate plan
Now let’s get into the nitty-gritty of how to develop your estate plan.
You have a lot of choices with your estate plan — after all, it is your estate plan. You can go into explicit detail, such as laying out a plan for every single piece of jewelry you own or every single piece of artwork (even NFTs!).
Meet with a lawyer
A lawyer can help you draw up the right type of will, name beneficiaries, draw up a durable power of attorney and create an advanced health care directive.
Finally, once you receive the official information from your lawyer and pay their fees, then it’s your job to get organized. Save your estate planning paperwork and financial records in a place that your executor can access, such as a bank safe deposit box or a home safe.
Don’t forget to save information about:
- Your assets
- Names of legal and financial advisers
- Inventory of the items in your safe deposit box
- Digital asset information
Estate plan checklist
In addition to the basics of a will, durable power of attorney and medical power of attorney, you can also consider having the following items on your estate plan checklist:
✓ Last will and testament or revocable living trust (a legal instrument that also lets you distribute your assets after you die, which “owns” the property you put into it)
✓ Beneficiary designations
✓ Advance health care directive or living will
✓ Financial power of attorney
✓ Insurance policies
✓ Asset information
✓ Proof of identity documents (Social Security card, birth certificate, marriage and divorce certificates, prenuptial agreements, etc.)
✓ Titles and property deeds
✓ Digital account logins and passwords
✓ Funeral instructions
It’s not too early to start estate planning.
Writing a will or trust safeguards your wishes, passes assets to your designated beneficiaries and outlines your health wishes, among other things. Ultimately, the goal of creating an estate plan amounts to peace of mind for yourself and your loved ones.
Ready to create an estate plan? Start by learning more about trusts.