You’ve spent years buying your home, vehicles and possessions; organizing your retirement funds; and accumulating your wealth. But have you made a plan for what happens to all of that after you pass away?
A majority of Americans don’t have an estate plan ready, but they should. Your “estate” comprises all the things you own—your home, cars, bank accounts, investments, personal possessions and everything else. An estate plan might sound daunting, but it’s pretty simple: it’s a documented plan for your estate.
What an estate plan entails
If you don’t have an estate plan, your assets may not be efficiently organized for after you pass away. Your remaining loved ones will be left to clean up the mess of probate expenses (the legal process of proving a will), estate taxes, confusion over asset delegation and more.
An estate plan helps simplify this by documenting your wishes, planning for financial and medical issues while you’re alive and transferring your property efficiently after you die. It ensures your wishes are upheld after your passing and keeps you in control, so the court can’t make the decisions for you. A thorough estate plan can also help reduce or eliminate estate taxes. Estate planning not only protects your assets, but also yourself and your family.
Estate plans typically contain numerous aspects, some of which you may already be familiar with.
Living will: Your will establishes instructions for the delegation of your assets after you die. It dictates to whom you want assets passed down to, as well as what you want passed down and when.
Revocable trusts: Trusts can hold a wide variety of assets and specify how you want them managed. The benefit of trusts is that they can protect certain assets from probate and maintain privacy. They also prevent court interference, since assets can go immediately to your heirs.
Powers of attorney: Establishing powers of attorney designates financial powers to a person of your choice. That person is allowed to make financial decisions on your behalf while you are alive, should you become incapacitated.
Medical directives: Establishing medical directives involves designating a medical power of attorney who can make medical decisions on your behalf. You will also want to document which types of medical care you do and do not want to receive.
Other specifications: Your estate plan should also include some additional information that’s important to your estate, such as proper asset titling, beneficiary designation for your retirement savings, funeral arrangements and guardianship for minors.
Who needs an estate plan?
Not everyone will need an estate plan. Some people will be just fine only creating a will and naming beneficiaries. Certain financial situations will make estate plans more ideal and simplify the asset delegation process.
You may want to consider an estate plan if you have children—especially young ones who would inherit your estate. Young children usually require additional planning to set up a trust or other provisions until they reach a certain age.
An estate plan is also a good idea if you have a more complicated financial and/or familial situation. Additionally, you may want to consider an estate plan if you own a business, plan to give money to charity or have other, more complicated financial needs.
In general, though, everyone should at least consider an estate plan and speak with a financial advisor about creating one. You may not need all aspects of an estate plan, but it’s a good idea to get your will, powers of attorney and guardianship squared away. By staying ahead of the curve and putting an estate plan in place, there will be no need to worry about your assets as you age.