Estate Planning Essentials

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Nobody knows how long we have to live. Think that’s morbid? What should really scare you is letting strangers decide who gets your possessions after you pass on. That can happen when you die without a will, also known as “intestate.”

In most cases, assets will be distributed among your relatives based on state intestate succession laws. If no relatives can be found, Uncle Sam gets to keep your things.

Scary, right? That’s why you shouldn’t wait until retirement to get your ducks in a row.

In its simplest form, estate planning is creating a blueprint for distribution of assets in the case of your death and/or mental incapacitation. Ideally, your assets are transferred seamlessly, avoiding a long process in probate courts while minimizing the cost of transfer to your heirs.

Estate planning isn’t just for the wealthy, although that is a common misconception. According to a 2017 survey by, 29% of those who didn’t have a will cited lack of assets as the reason. If you have a bank account, car, home, furniture, or an insurance policy, you have assets. However modest your estate is, it’s important to have a plan for how you want it to be distributed.

Here is a brief introduction to estate planning to help you get started:

·      Take Inventory. Taking stock of what you own is the first step to protecting your assets. Assets don’t have to be just bank accounts or investments. Include anything you own with value, such as vehicles, homes, collectibles, retirement savings accounts, and insurance policies. At the same time, create a list of any liabilities such as mortgages, loans, and lines of credit.

·      Protect Your Family. Typically, this means making sure you have enough insurance to protect the living after you’re gone. A life insurance policy in particular can give you peace of mind that the people you care about will be able to continue without your support. The beneficiaries of your life insurance should be the people who rely on your income, like a spouse, children, or parents.

·      Assemble key documents. There are several documents you’ll likely come across during estate planning, but the critical ones to understand are:

o   Power of Attorney. This document gives somebody the power to legal decisions on your behalf should you become mentally incapacitated while alive. If you’re married, your spouse has power of attorney by default. Power of Attorney expires upon your death.

o   Living Will or Medical Directive. The name varies by state, but its purpose is the same. This type of document allows you to specify how you want healthcare decisions to be made should you be unable to speak for yourself. An advanced healthcare directive also combines power of attorney, designating who will be allowed to make healthcare decisions on your behalf.

o   Will. Most people are familiar with a will, which states how your property will be distributed following your death. It names one or more persons to inherit your belongings, as well as an executor to manage and divide the estate according to your wishes. It is revocable and can be amended at any time while you are alive. Assets distributed through a will must go through probate court, which can be time-consuming and costly for your successors.

o   Living Trust. This document helps smooth the transfer of your estate without the costs and headaches of probate court. However, it requires placing all your assets into a trust while you are alive (called “funding the trust”). It’s also more expensive to draft than a simple will, and only recommended if you have significant assets, or specific needs that cannot be fulfilled with another document.

o   Beneficiary designations. A number of assets (e.g. 401(k), insurance policies) can pass to your heirs whether or not you have a will. In fact, the beneficiaries listed on your insurance policy supersedes even your last testament. It’s therefore a good idea to update the beneficiaries on all your accounts, especially those you established years ago. Choose heirs who are mentally competent and over the age of 21 to avoid your decision being contested in courts, and consider naming contingent beneficiaries for extra protection. For real estate assets, review how your property is titled.

·      Understand the Tax Implications. Taxes can take a sizeable chunk of the assets you leave behind. It may be useful to consult an accountant on the best way to structure the transfer of your possessions. Your last wishes may be subject to gift taxes, estate taxes, inheritance taxes, generation-skipping transfer (GST) taxes, and income taxes. A handful of states also have their own estate tax laws, which further complicates the process.

·      Review & Update Your Plan. Things can change a lot throughout your life. You may get divorced and remarry. In which case, you should check that your new spouse is the beneficiary of your life insurance before he or she finds out the hard way. Estate planning is not a one-and-done deal. Be sure to review your key documents on a regular basis to ensure they still meet all of your objectives.  

As you can see, there’s a lot to consider when deciding what happens after your death. While an estate planning professional will be able to give you more situation-specific advice, familiarizing yourself with the above is a great way place to start.