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Estate Planning: A Simple Guide to Secure Your Legacy

The goal of an estate plan is to ensure assets are passed to the rightful beneficiaries while minimizing inheritance taxes and estate taxes.

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.

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 preparing and arranging your financial affairs. It outlines what assets are owned and how they will be distributed.

The goal of an estate plan is to ensure assets are passed to the rightful beneficiaries while minimizing inheritance and estate taxes.

Do You Really Need One?

There’s an assumption that you must be wealthy to benefit from estate planning. That is not the case. Everyone can benefit from having an estate plan as part of a comprehensive financial plan.  

Have an estate plan. If not, your state may already have one for you. In case of death or physical incapacitation, your state has default laws that kick in.

Many of these laws will not manage your estate as you want it to.

If you don’t want this to happen, the best approach is to have a plan to manage your estate after death on your terms.

For Your Peace of Mind

We know you don’t want to think about dying or being sick. You might think that setting up an estate plan is too expensive or that you don’t have enough assets to make it worth it.

Understand that death and illness aren’t easy subjects to discuss, but through estate planning, you’ll be able to reduce the stress during emotionally charged times.

So, it is important to prepare your estate plan. With it, an estate plan can protect your family, loved ones, and assets if you have one in place.

What’s in an Estate Plan?

A clear benefit of 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.

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,
  • a healthcare power of attorney and living will, 
  • financial power of attorney,
  • trust accounts,
  • and adding beneficiaries to existing financial accounts.

Getting Started with Estate Planning

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

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

Step 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.

Asset CategoryDescriptionExample
Tangible AssetsPhysical assets that you own, including real estate, vehicles, artwork, jewelry, furniture, and more.Home valued at $300,000, Car worth $20,000
Intangible AssetsNon-physical assets such as cash, investments, retirement accounts, life insurance, and digital assets.Savings account balance of $50,000, 401(k) with $200,000
TotalThe sum of all tangible and intangible assets.$570,000

You can do some research online to assess the value of your stuff. If you choose that route, this can help you determine how to distribute your tangible items equitably. 

Step 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 all other debt obligation types. Indicate the creditors along with the account numbers, signed agreements (if available), and their location contact information.

Here’s a table example for listing existing and outstanding debt:

CreditorAccount NumberSigned AgreementContact Information
ABC Bank123456789YesPhone: 123-456-7890
XYZ Credit Union987654321NoEmail: info@xyzcreditunion.com
Mortgage Company456789012YesWebsite: www.mortgageco.com

This table provides a structured format for listing creditors, account numbers, whether a signed agreement exists, and contact information for each debt obligation.

3. Decide your inheritance circle

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

Here’s a table example to help consider beneficiaries in estate planning:

RelationshipNamePercentage (%)Contingencies/Instructions
SpouseJohn Doe50N/A
Child 1Sarah Doe25In trust until age 25
Child 2Michael Doe25Equally with Sarah Doe
SiblingJane Smith10Only if spouse and children deceased
CharityLocal Animal Shelter5Upon sale of property

This table outlines potential beneficiaries, their relationship, designated percentages of the estate, and any contingencies or specific instructions for distribution. It helps ensure clarity and alignment with estate planning goals and intentions.

Keep in mind that it’s your choice how your assets are distributed. You are not obligated to distribute your financial assets to everyone or equally to beneficiaries.

4. Considerations: Guardianship for children

When drafting an estate plan, consider your family’s financial needs. Ask yourself: How much money would they need to get through the loss? Will the cost of funeral arrangements be covered? 

Name a primary and backup guardian for your children in your will. This can answer questions about your wishes regarding their care. Speak with an attorney to ensure your will is clear and concise regarding your child’s well-being.

Here’s a table example for naming guardians for children in a will:

Child’s NamePrimary GuardianBackup Guardian
John Doe Jr.Jane and Michael DoeSarah Gimenez
Emily DoeSarah and Mark GimenezJane and Michael Doe

This table provides a clear reference for who will assume guardianship of each child in the event of the parents’ incapacitation or passing. It’s important to consult with an attorney to ensure legal clarity and compliance with local regulations.

5. Update your estate plan regularly

Review periodically and update your documents and accounts as your situation or current laws change.

After major life changes, such as buying a home, marriage or divorce, or 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.


What’s in an Estate Plan?

In the next section, you’ll learn the importance of having a will, powers of attorney, trust, and more.

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, states who you want to inherit your property, and names guardians for young children. A will distributes your assets to heirs and may 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 not have someone 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, 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

A healthcare power of attorney is a signed legal document if you can’t make medical decisions. It names a single person as your healthcare decision-maker when making medical decisions.

A 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 medical intervention that you do or don’t want.  

If you wish, you can combine these two into one document called 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. Beneficiary designation often supersedes the last will and testament.

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.

Here’s a table example for reviewing beneficiary designations:

Account TypeBeneficiary DesignationCurrent Designated BeneficiaryNotes
Bank AccountChecking AccountJohn DoeUpdated 01/01/2023
Retirement401(k)Jane SoaresUpdated 05/15/2022
BrokerageInvestment PortfolioMaria JohnsonUpdated 03/20/2023
Life InsurancePolicy XYZMichael WuUpdated 12/10/2022

This table records beneficiary designations across various accounts, ensuring that the intended beneficiaries are accurately listed and up to date. Regularly reviewing and updating these designations is essential to reflect any changes in personal circumstances or preferences.

Insurance Protections

Consider having a life insurance policy for financial support if you’re a parent or have any dependents, such as minor children.

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 other unique situations.

Additionally, if you have a large outstanding debt, a life insurance policy may help pay it off upon death. This ensures your assets go directly to your heirs without liquidation to repay debt. 

Learn more about insurance planning.

Conclusion

An estate plan is a living document that needs to be revised, reviewed, and amended as situations change, such as major life events: marriage, divorce, births, or deaths.

To learn more read the 2 stages of an estate plan.


DIY or Estate Planning Expert

Working directly with an estate planning attorney is an optimal way to document significant assets and financial situations correctly. However, many DIY services enable you to draft legally binding last wills, testaments, and a power of attorney. 

Work with an Estate Planning Attorney

An attorney or professional may know the specifics required for your state and ensure, based on your personal situation, how to structure your legal document.

Working with an estate planning expert, such as an attorney specializing in estate law, can be beneficial in various situations.

Here are some instances when it’s advisable:

  • Complexity of Assets: If you have a complex estate with diverse assets, such as businesses, multiple properties, investments, or international assets, consulting an estate planning expert can ensure that your estate plan effectively addresses all aspects of your wealth.
  • Blended Families: If you’re part of a blended family with children from previous relationships, estate planning can become more intricate. An estate planning expert can help navigate potential conflicts and ensure your wishes are clearly communicated and legally enforceable.
  • Tax Planning: Estate taxes can significantly impact the distribution of your assets upon your death, especially if your estate exceeds certain thresholds. An estate planning expert can implement strategies to minimize tax liabilities and maximize the value of your estate for your beneficiaries.
  • Special Needs Planning: If you have dependents with special needs, crafting an estate plan that provides for their long-term care and financial security requires careful consideration. An estate planning expert can help establish trusts and other mechanisms to safeguard their interests.
  • Charitable Giving: If philanthropy is an essential aspect of your legacy, an estate planning expert can assist in structuring charitable trusts or foundations to support your philanthropic goals while maximizing tax benefits.

When selecting an estate planning expert, consider:

  1. Expertise and Experience: Choose an attorney or estate planning professional with specialized expertise and extensive experience in estate law. Look for credentials such as certification in estate planning or membership in relevant professional organizations.
  2. Client References: Seek referrals or testimonials from past clients to gauge the expertise and effectiveness of the estate planning expert. Positive reviews and recommendations from satisfied clients can provide valuable insights into their capabilities.
  3. Communication Style: Opt for an estate planning expert who communicates clearly, listens attentively to your concerns, and explains complex legal concepts in understandable terms.
  4. Personalized Approach: Select an estate planning expert to craft plans tailored to your unique circumstances and objectives. Avoid one-size-fits-all solutions and prioritize professionals who will consider your individual needs and preferences.
  5. Transparent Fees: Inquire about the fee structure upfront and ensure it aligns with your budget and expectations. Choose an estate planning expert who provides transparent and reasonable fee arrangements, avoiding hidden costs or surprises.

Working with a qualified and reputable estate planning expert ensures that your assets will be protected, your wishes will be honored, and your loved ones will be provided for according to your wishes.

Remember that drafting proper legal documents may well be worth the costs of a complete estate plan with an experienced attorney. Determine which option is best for your situation.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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