The Basics of Estate Planning

A constant theme with financial wellness and stability is planning. We plan for big purchases throughout our lives and that same planning should be applied to your estate. Your estate includes all the assets you have such as your home, investments, retirement accounts and other belongings. Regardless of how much value you have in your estate, you want to make sure it goes to the right people, which is why it is worth taking time to plan for what happens to it. When you fail to have an estate plan, you’re opening yourself up, or more so your loved ones, to the laws of the specific state you’re in to decide where your estate goes. Sometimes that may not produce the result you would have wanted. If you haven’t started your estate planning yet, follow the steps below to get the process started.

Set Up a Will or Trust

Wills and trusts are foundations of estate planning and both tools help make sure your assets are directed to the correct individuals or entities. Below are more detailed summaries of each:

  • Will – A will is the most common estate planning tool which allows you to direct how your assets should be administered, and who should manage your assets in the event of your death. Wills are required to go through a process called probate in which a judge examines the legitimacy of the will. An attorney or other entity helps create your will and you update it as needed to ensure it still reflects your situation and wishes.

  • Trust – A trust is a legal arrangement in which your assets are held for a beneficiary or beneficiaries. Part of your trust involves you identifying a trustee to manage your assets according to the terms in your trust. Unlike wills, trusts don’t require the probate process.

Determining which tool to use depends on your situation. Both offer similar objectives, however, there are finer details which might sway your decision. Trusts are traditionally more expensive than wills and require more work, however, not everyone needs a trust. Depending on your situation, a will might suffice. For complicated estates, you may want to speak with an estate planning attorney. Otherwise, a simple trust or will can be done online with legal organizations. Creating a will or trust now will allow you to consider all the options and scenarios without concerns weighing on you that can arise later in life.

Review and Confirm Beneficiaries

Your will or trust will state your wishes, however they are not all encompassing and there may be other accounts where you need to add beneficiaries. Many folks have life changing events such as marriages, divorces or children, which necessitate updating beneficiaries for a 401(k) or other retirement or insurance accounts. In many cases, you can even put down a contingent beneficiary in case the primary beneficiary has passed as well. Inheriting the assets of a 401(k) or other financial account is a critical moment and it’s important to make sure you review your various beneficiaries periodically to confirm they are accurate.

Establish a Power of Attorney

Another critical step in protecting your estate is designating a power of attorney to help make decisions if you become incapacitated for any reason. A financial power of attorney gives one person the power to act on the behalf of another person (you) as it relates to decisions regarding property, finances, etc. A medical power of attorney, as well as a living will or advanced directive, allows for someone to make medical decisions on your behalf. The same person can serve as both if you wish. There could be a situation excluding death, in which you’re mentally unfit to make decisions in which case a power of attorney would be essential to protecting your assets.  A power of attorney is easy to set up and incredibly flexible. It cannot be stressed enough that you name a person who is trustworthy, reliable and capable of serving as your agent. As with wills and trusts, there are online resources available that can help you set up your power of attorney or you can go the lawyer route and use a trusted estate attorney.

Consider Life Insurance

Life insurance is an important financial tool. It provides money to the people who depend on you when you pass away. Not everyone will need life insurance, but there are many situations in which it would help. For a small monthly fee, life insurance would help your beneficiaries pay any debts as part of your estate, funeral expenses, estate taxes, settlement costs, etc. Make sure to carefully analyze all factors before purchasing life insurance as certain circumstances may not necessitate it. As is the theme in this blog, life insurance can also help make a difference in your heirs receiving what you’ve intended them to get. Consult a tax advisor.

Keep Documents in a Safe Place

Lastly, now that you’ve gone through all this work of preparing your estate and completing countless documents, make sure they’re safe by storing them in a safe place. It’s a best practice to keep these types of documents along with others in a safe or fire proof box to ensure they won’t ever be damaged or taken. Share the location with your power of attorney or executer of your will so they know where to find them. It is also important to keep electronic copies as well and share those files with the executors and power of attorney.

Estate planning can be a lengthy process and may involve some difficult decisions. However, if you keep some of these basics in mind and plan now, your estate and beneficiaries should be in good shape. You’ve worked very hard for the wealth you’ve built up, make sure to plan appropriately and keep that wealth for your heirs.

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