Many people assume estate planning is only for the wealthy — those who own big homes or have large bank accounts — or people who are older. But here’s the truth: Everyone has an estate, which means everyone needs an estate plan.
Why Estate Planning is Important
Your estate is more than just your house and the money in your bank accounts; it includes all your financial assets, property and belongings. Estate planning is the process of outlining your plans for those things after you die, giving you control even when you’re gone or in the event you’re unable to handle affairs on your own.
For younger generations or those without substantial assets, estate planning may not seem like it matters, but Alexandra Mysoor, CEO of the estate settlement platform Alix, disagrees.
“Sometimes it’s a small amount that goes to the beneficiaries, right? And it’s still life changing. If someone deposited $10,000 to $20,000 in your bank account tonight, wouldn’t that change your life?” she told Fortune. “But if they spend an exorbitant amount of money settling the estate, that just takes away from what is possible for them.”
Reasons to Create an Estate Plan
- Save your loved ones time, money and stress by avoiding probate
- Decide who gets your assets and property — and who does not.
- Nominate a guardian for your minor children.
- Choose a caretaker for your pets.
- Lower the potential for family disputes.
Let’s be honest: estate planning sounds complicated and can feel overwhelming. The good news is there are plenty of resources and tools to make it easier. And once it’s done, you’ll have the peace of mind that comes with knowing you’ve planned ahead for yourself and your loved ones.
Common Estate planning Documents
There are several documents that make up your estate plan, but not all include the same ones. Your estate plan is unique to you and should be crafted to reflect your specific needs and situation. Keep reading for some of the most common components of an estate plan, and check this estate planning checklist for other documents you may need.
Will
A will is probably the estate planning document people are most familiar with. Your will is a legal document that specifies how you want your property and assets distributed when you die. It also usually outlines the executor of your estate, guardianship for any minor children, who should care for your pets and so much more. Having this key document in place typically makes the process of administering your estate — known as probate — much simpler. If you die without a will, local courts will likely settle your estate and may make decisions you wouldn’t agree with.
Each state has its own requirements when it comes to valid wills, so we recommend seeking legal advice from an estate planning attorney. Not sure where to start? Your local funeral home may have a partnership with some in the area, or you can search for accredited estate planners on the National Association of Estate Planners & Councils website.
Financial Power of Attorney
Sometimes called a durable power of attorney or property power of attorney, this legal document gives the person you choose the ability to handle your financial affairs if you’re unable to do so yourself. They can pay your expenses, file your taxes, make gifts, collect benefits such as Social Security or disability and manage your investments.
Advance Healthcare Directive
An advance healthcare directive outlines what, if any, medical actions should be taken if you are unable to make the decisions yourself. Typically, this includes the two documents below, allowing you to give instructions while also designating someone else to make decisions, if needed.
- A medical power of attorney is to your health affairs what your financial power of attorney is to your financial affairs. The document lets you designate someone else to make healthcare decisions for you if you cannot. Because this person could be making life-or-death decisions, it’s important you choose someone you trust to follow your instructions. Consider taking time to talk through possible scenarios with them so you can feel confident they understand what you would want.
- A living will provides instructions for your end-of-life care, specifying whether you’d like to be an organ donor, if you want medical staff to perform life-sustaining measures (ventilators, artificial feeding, dialysis, etc.) and other medical preferences.
Other Estate Planning Components
- Trusts: Trusts give you greater control over how your assets will be distributed with the added benefit of possibly helping you reduce estate taxes. You must name a trustee — which can be an individual, a financial institution or both — to oversee the distribution of your assets.
- Beneficiary designations: Some assets, like life insurance and retirement accounts, allow you to name a beneficiary to receive the asset when you pass away. They can transfer directly to your beneficiaries without having to go through the probate process. If you don’t have any dependents or don’t want a specific person to receive them, you can always use your beneficiary designations to give to charitable causes close to your heart.
- Legacy letter to your family: Because the legal documents may not communicate the reasons behind your estate plans, a legacy letter is a way to provide clarity. While not a formal estate planning document, a letter in your voice, expressing your wishes can be especially meaningful to your loved ones after your death. It’s also a good place to include funeral and/or burial arrangements as well as preferences you have for any services.
- Funeral instructions: While planning your own funeral can be uncomfortable and daunting, there are many reasons to preplan your funeral. Not only does it give you the opportunity to outline exactly the type of service you’d like to have, it also alleviates an additional burden for your loved ones who will have many other affairs to manage after your death.
- Memorandum: Some sentimental items, like jewelry or artwork, may not need to be outlined in a legal document like your will, but you might still want to make sure your loved ones know who you want to have them. Keep in mind, though, it may not be legally binding depending on where you live.
How to Create Your Estate Plan
Because estate planning can be complex, we recommend working with an estate planning attorney to create your estate plan. However, there are many tools and guides available to help you get started from the comfort of your own couch! Online estate planning services like Trust & Will, GoodTrust and FreeWill are just a few that are on the market right now.
Regardless of how you decide to start your estate plan, it’s a good idea to have an estate planning attorney in your state review your final documents to be sure they’re legally sound. You wouldn’t want to take all that time and effort to create your plan only for your loved ones to find out they’re not valid in court after your passing.
If you’ve recently experienced a loss and are facing the estate settlement process, Alix can be a helpful resource. One of their experts will work with you to review your loved one’s estate and help you do everything necessary to settle it.
Once you’ve completed your estate plan, don’t just set it and forget it! It’s important to keep it updated as you experience life changes like moving, having children or buying a house. Even still, experts recommend reviewing your estate planning documents every three to five years to ensure it still reflects your final wishes.
The language in this blog is strictly for informational purposes and should not be construed as legal advice. If you have any questions about this material, we encourage you to meet with an attorney.
