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Estate Planning: A Simple Guide for Peace of Mind

There may come a time of your incapacitation or passing when estate planning would give peace of mind to loved ones. 

However, a lot of people aren’t comfortable talking about estate planning. Most people don’t want to think about what’s going to happen after death, but it’s important to do so if you want to leave things to your family and friends. A legal plan ensures your assets are distributed based on your wishes and is carried out.

Ask yourself: how do you want your financial life managed if incapacitated and assets distributed upon death?

What is Estate Planning?

Estate planning is a process that includes the preparation and arrangement of your financial affairs. It outlines what assets are owned and how the assets will be distributed. The goal of an estate plan is to ensure assets are passed to the rightful beneficiaries while minimizing inheritance taxes and estate taxes.

Estate Planning Benefits: Do You Need One?

There’s an assumption that you need to be wealthy to benefit from estate planning. That is not the case. Everyone can benefit from having an estate plan.  

A clear benefit for preparing an estate plan is the peace of mind that your assets and possessions will be given to the rightful heirs. Additionally, it can answer any questions your loved ones may have about your wishes.

To create an estate plan, you may be able to work with a financial advisor, financial planners, and an estate planning attorney.

Estate planning sounds like an extensive process, but it’s not as complicated as it sounds. In this simple guide to estate planning, you’ll learn the following:

  • identifying your valuable assets,
  • considerations on beneficiaries
  • will and testament,
  • healthcare power of attorney and living will, 
  • financial power of attorney,
  • trust accounts,
  • and adding beneficiaries to existing financial accounts.

Steps to Estate Planning: Getting Started

The process starts with identifying all your assets and determining who in your family, friends or organization would receive them.

1. Make an inventory of your belongings

Start the estate planning process by taking an inventory of your stuff. This is everything you own both tangible and intangible. Tangible assets are houses, real estate, cars, boats, art, furniture, clothing, and any other item of value. With intangible assets, they include money in bank accounts, brokerages, 401(k)s, insurance policies, digital assets, and more. 

When assessing the value of your stuff, you can do some research online. This can help you determine how to equitable distribute your tangible items if you choose that route. 

2. List your financial obligations

It’s helpful to have a list of your existing and outstanding debt. This includes a list of open credit cards, personal loans, mortgages, and any and all other types of the debt obligation. Indicate the creditors along with the accounts numbers, signed agreements (if available), and their location contact information.

3. Decide your inheritance circle

Take time to think about the people in your life. Most will default to their partner and children. And others will consider siblings, parents, extended family, and friends. While a few may also want to leave assets to organizations and religious groups.

Keep in mind, it’s your choice on how your assets are distributed. There’s no obligation that your financial assets be distributed to everyone or equally for that matter.

4. Considerations: Guardianship for children

When drafting an estate plan, think about the financial needs of your family. Ask yourself: how much money would they need to get through the loss? will the cost of funeral arrangements be covered? 

Additionally, name a primary and backup guardian for your children in your will. This can answer questions about your wishes with regards to taking care of your children. Speak with an attorney to ensure your will is clear and concise with regard to your child’s wellbeing.

5. Update your estate plan regularly

Review periodically and update your documents and accounts as your situation changes or as current laws change. After major life changes, such as buying a home, marriage or divorce, having children, you’ll want to revisit your estate plan and make the necessary updates.

Don’t forget. Your estate planning documents must be accessible so your wishes can be followed.

Now, let’s discuss the main components of estate planning.

Important Factors of Estate Planning

In the next section, you’ll learn the importance of having a will, powers of attorney, trust, and more. Estate planning basics include the following:

Last Will and Testament

The main element of an estate plan is the last will and testament. This legal document outlines your wishes upon passing and states who you want to inherit your property and name guardians for young children. A will distributes your assets to heirs and skip the probate process.

In most states without a will, your assets will go through a probate process. In this scenario, the state determines the distribution of your assets.

When drafting your will, speak with your potential heirs and share your thoughts. This can help clarify your final wishes and lessen misunderstandings or disagreements.

Financial Power of Attorney

A financial power of attorney assigns an agent to manage financial affairs if you’re incapacitated. The designated agent in your durable power of attorney can act on your behalf in financial situations. Without this POA document, you would have no one to manage your financial affairs such as paying bills, filing taxes, accessing bank and investment accounts, and other financial matters.  

If giving someone full control over your finances troubles you, then consider a limited power of attorney. This legal document gives specific power to complete financial tasks. Be mindful of whom you give power of attorney. You can opt to choose two different people for your medical and financial POA.

Healthcare Power of Attorney and Living Will

If you can’t make your own medical decisions, a healthcare power of attorney is a signed legal document. It names a single person as your healthcare decision-maker to make medical decisions.

Healthcare or medical directive, also known as a living will, is a document that outlines your wishes regarding medical care if you are no longer able to communicate. This is a statement of your wishes about life support and any kind of medical intervention that you do or don’t want.  

If you wish, you can combine these two into one document referred to as an advance health care directive. 

A Trust

In certain situations, establishing a trust is an appropriate move. A trust is a legal entity that owns your assets. With a trust, whether you’re alive or dead, assets are controlled based on your outlined wishes.

A living trust allows for portions of your estate to go towards certain things while you’re alive. If you become ill or unable to care for yourself, your chosen trustees can take over in a living trust. The designated beneficiaries receive the assets in the trust after your death. It circumvents the court probate process. Additionally, it’s possible to set up an irrevocable living trust, which the creator can’t revoke.

File Beneficiaries for Accounts

Make sure you name a beneficiary and contingent beneficiary to every financial account, retirement plan, and insurance policy. When you name a beneficiary for these accounts, plans, and policies they skip probate. These accounts automatically become “payable on death” to the named beneficiary.

Review your retirement accounts, brokerage, and insurance policy. They usually have beneficiary designations. Ensure you name a beneficiary, keep track of those listed in the account, and update when necessary.

Beneficiary designation often supersedes the last will and testament.

Insurance Protections

If you’re a parent or have anyone dependent such as minor children for financial support, consider having a life insurance policy. The amount of life insurance you need depends on your personal circumstances. You may need a bigger policy if you have a larger family, younger children, and any other unique situations. Additionally, if you have large outstanding debt, a life insurance policy may help pay them off upon your death. This ensures your assets go directly to your heirs without liquidation to repay debt. 

Working with an Estate Planning Attorney

Working directly with an estate planning attorney is an optimal way to correctly document significant assets and financial situations. However, there are many DIY services that enable you to draft your last will and testament and the power of attorneys that are legally binding. 

Consider services such as Trust & Will. You can learn more about them here.

Keep in mind, the cost of drafting proper and legal documents may well be worth the costs for a complete estate plan with an experienced attorney. Determine which option is best for your situation.

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