Estate planning may feel like a lower priority compared to other, more immediate aspects of your finances, especially if you’re young. Even so, it’s necessary to consider your financial wellbeing and peace of mind, as well as for your loved ones.
What is estate planning?
Estate planning is the legal process of arranging how your assets will be handled after your death or in the event you’re unable to make critical decisions. A detailed estate plan lets others understand and follow your wishes, which is particularly important in situations like assigning a guardian for your children, but it’s equally beneficial to couples without kids, too.
Key components of an estate plan
An estate plan could include a:
Will: This outlines how your assets should be distributed and usually names an executor or personal representative to administer the distribution. Your will can also include funeral instructions and appoint guardians of children until they become adults.
Trust: This grants ownership of property or assets to a trustee who will distribute that property to a beneficiary, either after your death or while still living.
Durable power of attorney: This legally identifies someone to take care of your affairs.
Medical power of attorney: This gives someone the authority to make major medical decisions for you when you cannot make them yourself.
How do I benefit from estate planning?
It can feel daunting, but it’s worth taking the time to develop an estate plan to protect your assets to help ensure they end up where and with whom you want them to go. Additional benefits include:
Direct asset distribution: An automatic transfer of money and property ownership to the identified beneficiary
Tax savings: A plan can help reduce how much your estate owes in inheritance tax.
Minimize probate process: Estate administration can be complex. An estate plan can help you better manage the process.
Dependent care provisions: You establish legal guardianship for your children (or an adult with special needs) and determine how any funds left to these dependents are managed (such as a trust).
Incapacity decisions: Including a durable power of attorney and/or healthcare proxy can help ensure your wishes are met if you are still living but can no longer make decisions for yourself (due to physical or mental incapacitation).
Reducing potential conflict: Estate planning gives clarity to your loved ones about what you want to happen with your assets, healthcare and any dependents at a time when emotions can run high.
What information is important to estate planning?
A lawyer should help you determine which documents you may need before you create your specific estate plan, but they could include:
An inventory of accounts, assets, and liabilities
A list of beneficiaries and any special gifts you may want to make
These are important details in your documentation because they:
Identify transfer on death (TOD) beneficiaries on accounts, circumventing the estate process
Name an estate representative
What estate planning is not
A number of misconceptions that may keep you from starting your estate plan. Let’s clear up some of the most common:
Estate planning is only for the very wealthy: If you have assets of any kind, you can benefit from some sort of estate plan. For example, if you want to leave your house to your child, it’s important to identify that through your plan.
Estate planning is only about distributing assets: It’s far more than just distribution. A will can cover your funeral arrangements and other personal wishes aside from asset distribution.
Estate planning is a one-time task: Life changes and so should your estate plan. Every three to five years, or anytime you experience a significant life event or milestone (such as starting a family, getting married or divorced, etc.), consider updating your estate plan. A living will makes it more likely that your end-of-life plan is enforced.
Estate planning frequently asked questions
With so much at stake, estate planning can be an overwhelming and confusing process — let’s tackle some of the most common questions.
How much does estate planning cost?
Some attorneys may prepare a simple will or power of attorney. For more complex documents, expect to pay an attorney’s hourly rate, which will depend on factors like their experience and location.
Can I do my own estate planning?
If you have modest assets in your own name and plan to leave them to a closest living relative, you could use an online platform. A lawyer can assist in drawing up the appropriate type of will, as well as name beneficiaries, prepare a durable power of attorney and establish an advanced health care directive.
However, it may be helpful to consult an attorney to aid you in developing your estate plan. An Attorney may also be able to address the legal needs of LGBTQ+ families or non-traditional family structures. After your plan is developed, a financial advisor can help arrange everything to fit the plan.
When should I start estate planning?
When you become a legal adult, it’s smart to consider an estate plan. Remember to revisit that plan as your financial situation evolves.
How to create an estate plan
Your estate plan is a personal document, so its specifics will vary widely. Consider these steps to create a plan that meets your needs:
Estate Planning Step | Benefit |
|---|---|
Itemize your inventory | Make a comprehensive list of your assets and debts and determine what your family members may need at different stages of their lives. |
Have a power of attorney prepared | Be intentional about appointing someone you know you can trust and carefully consider what duties and authority you would include. |
Get a will and testament | Identify the individuals you’d like to inherit your assets and any special instructions you want carried out after your death. |
Plan to reassess | Update your estate plan after major life events. As you reassess, consider that any debt becomes the responsibility of the estate when you die. |
Know your state’s estate tax laws | Talk to a tax professional about possible tax consequences. |
The time is now
While it might be easier to put off estate planning for one reason or another, establishing a comprehensive plan should safeguard your wishes and provide more peace of mind for you and your family.
