Estate Planning 101

Who should get your home or your retirement savings after you die? Who should receive your vintage vinyl collection?
 
Hopefully you won’t pass on while your children are still young, but if you do, who do you trust to take care of them?
 
Estate planning involves putting your decisions in writing, so you know that your wishes will be followed. Some people mistakenly believe that estate planning is just for the wealthy, but it’s for everyone.

What Is Estate Planning?

Your estate includes everything you own – from your car, to your 401(k), to your furniture. Estate planning involves deciding how those assets will be divvied up amongst your loved ones after you’re gone.
 
But that’s not all. You can also use an estate plan to provide instructions about who should care for your children or your pets after you die, and even what type of funeral you’d like.
 
During the estate planning process, it’s best to meet with trusted advisors such as your financial planner, your life insurance agent, and an estate planning attorney. They can guide you through the process and create legal documents that make your wishes clear.
 
Estate planning helps you and your heirs in several ways.

• You get to decide who gets what. If you don’t plan your estate, a judge will make decisions for you based on state laws called “intestacy laws.” That means your home or the money in your checking account could go to someone you didn’t choose. (Some states do have laws that prevent you from disinheriting certain family members, such as your spouse or children.)
• You can reduce the likelihood of family squabbles. Estate planning makes your intentions clear, so family members are less likely to fight over your jewelry or prized baseball card collection.
• Your loved ones will receive your assets more quickly. Without an estate plan, your estate could get stuck in probate, a legal process for reviewing your assets and determining your beneficiaries. That means your heirs could face a more complicated and expensive process.
• You get to choose who will raise your minor children after you’re gone. You can designate guardianship for your kids and other dependents, such as pets.
• If you become incapacitated, you’ll have trustworthy help. You can legally name someone to speak for you if you can no longer make decisions for yourself. This person, who becomes your “agent,” could be a family member or a friend. You might choose your spouse, for example, to make healthcare decisions on your behalf. And you might appoint your brother, who’s an accountant, to manage your financial affairs if you’re no longer up to the task.

What Will Happen to Your Estate?

If you have a will, your estate will go to your chosen heirs. If you die “intestate” – without a will – a probate court decides who receives your assets.

Estate Planning vs. a Will

A will, also called a “last will and testament,” is a legal document that spells out who should receive your assets after you pass on. It also states who should take care of your minor children. A will is designed to make your wishes clear, so your heirs won’t have to do a lot of guesswork. A will is the cornerstone of most estate plans, but it’s only part of it.
 
An estate plan is more comprehensive. It instructs your loved ones how to handle your various affairs after you die – or even while you’re still alive but unable to handle certain tasks yourself.
 
An estate plan usually includes a will and other documents such as an advance directive (to convey your wishes about end-of-life medical care) and a power of attorney (giving someone else you trust the authority to make certain decisions on your behalf).

Estate Planning Checklist

Follow these steps to begin planning your estate:

1. Assemble your advisory team, professionals who can help you create a clear, comprehensive estate plan.
2. Gather important documents so you and your advisory team will have the information you need to complete the estate planning process. Gathering documents ahead of time will save time and frustration down the road.
3. Take an inventory of your assets and liabilities, so you have a full accounting of your estate.
4. Choose an executor for your estate. This should be someone who you trust to handle the financial tasks and other duties that you would handle if you were still alive.
5. Choose your beneficiaries, the people who should inherit your financial assets and personal belongings after you pass.
6. Establish legal directives so your loved ones can handle your affairs the way you would want.

Assemble Your Advisory Team

It’s a good idea to set up appointments with a financial advisor, an estate planning attorney, and a tax professional to help you create a custom estate plan that meets your goals. They’ll be able to guide you through the process, prepare the legal documents you need, and minimize the taxes that your heirs will pay.
 

Gather Important Documents

Everyone’s situation is different, but certain documents will be helpful as you plan your estate.
 
Before meeting with your advisors, gather:

• statements for your checking, savings, investment, and retirement accounts
• mortgages, deeds, and titles
• statements showing the balances of any outstanding debts
• life insurance policies
• disability insurance policies

Take an Inventory of Your Assets and Liabilities

Everything you own is part of your estate. So take some time to write it all down. You’ll want to include:

• your home and any other real estate you own
• financial assets like savings and checking accounts, stocks and bonds, and retirement accounts
• valuable personal belongings
• contents of any safes or safety deposit boxes (note their location)
• insurance policies (note their cash value and death benefit)
• business interests that you have a stake in (note your percentage of profit shares, stock options and such)
• any money owed to you, such as personal loans
• liabilities including mortgages and other debt

Choose an Executor

 
An executor is the person who will be in charge of handling your estate when you’re gone. They’ll be responsible for paying creditors, selling your property, distributing your assets to your loved ones, notifying banks and other institutions of your death and more.
 
Most people choose a family member or close friend as their executor. Your executor should be organized, level-headed, and trustworthy. The court may require that your executor be bonded (insured), so choose someone who has a good credit history and no criminal background.
 
Your chosen executor has the right to decline the job, so it’s important to name a backup executor, too.
 

Choose Your Beneficiaries

 
Decide who should inherit your home, car, personal belongings, and financial assets. You can usually divide them up any way you’d like.
 
In many cases, you’ll want to choose a primary beneficiary – the first person who will have a claim to the asset – as well as a secondary or contingent beneficiary. That way, if the primary beneficiary dies before you do, or can’t accept the asset for some other reason, the asset will go to the secondary beneficiary.
 
You may want to name a favorite charity as a beneficiary. Just as with other beneficiaries, you can leave either a defined dollar amount or assets – such as stocks or a vehicle – to a charitable organization. If you do this, be sure to let the charity know. They enjoy hearing from planned donors and can direct your future gift toward the programs that you care about most.
 

Establish Legal Directives

 
Legal directives put your decisions in writing so they’re honored after you die or become incapacitated. You’ll have confidence that arrangements will be carried out just as you would like.
 
Legal directives also ease the burden on your loved ones. While they’re grieving, they won’t need to guess which type of funeral you wanted. It will be right there, in black and white.
 
You can issue legal directives for various situations by preparing documents such as:

• a will, which states who should receive your assets after you pass on. A will also states who should take care of your minor children.
• a trust, a legal document that appoints someone (your trustee) to oversee certain assets until your beneficiaries inherit them. If you have minor children, for example, you might appoint a responsible adult to safeguard your children’s inheritance until they become adults.
• an advance directive (also called a “living will”), which details which types of medical treatment you do (or do not) want if you become unconscious or are otherwise can’t make decisions for yourself.
• a power of attorney, a document that gives someone you appoint (your agent) the power to make decisions on your behalf. There are various kinds.
  • a financial power of attorney gives your agent the authority to make decisions about your money and property.
  • a healthcare power of attorney authorizes your agent to make decisions about your medical care if you’re no longer able to. If you have an advance directive, your agent will do their best to follow it. With certain complex medical situations, it might be unclear what your wishes would be, so the agent will use their best judgment.
  • a general power of attorney gives your agent the power to make any decisions on your behalf (within the law).
• a final arrangements directive, which makes your funeral-related wishes known. Would you prefer to be cremated or buried? Would you like your body to be donated to scientific research? Is there a specific song you’d like played at your funeral? It’s best not to include details about final arrangements in your will, because a will isn’t usually administered right after someone dies. Instead, prepare a separate final arrangements directive.

Once you’ve created your estate plan, reward yourself for a job well done. But keep in mind that your estate plan is a living document.
 
Review your estate plan every few years or whenever there’s a major life event. If you get married or divorced, have a child, relocate or experience a change in your financial situation, you may need to update it.
 

 

Sources:
 
American Bar Association, “Estate Planning Information and FAQs,” accessed September 26, 2024
 
National Council on Aging, “Estate Planning Guide and Checklist for 2024,” accessed September 26, 2024
 
Office of Financial Readiness, “An Introduction to Estate Planning,” accessed September 26, 2024
 
National Institute on Aging, “Getting Your Affairs in Order Checklist: Documents to Prepare for the Future,” accessed October 1, 2024
 
LegalZoom, “Estate Planning Checklist: How to Start Getting Your Affairs in Order,” accessed September 26, 2024
 

 

 
This article was created in accordance with the Patelco editorial policy.