Estate Planning - What are Your Goals for Your Estate?

If you think estate planning is something you only need to do when you get older (or wealthier), think again! Or just ask the 55% of people in the U.S. who die without a will.

Unfortunately, what happens to these folks is that they end up with what we call a “state” plan (rather than an estate plan) where the state gets to decide what happens to their assets (and when, which is known for taking a very long time when the proper estate planning documents are missing). This puts a lot of unnecessary stress on surviving family members who are already grieving. But worse than that, it can severely impact how much of your legacy they actually receive.

So even though you may not like to think about it, you have to spell out (legally) what you want to have happen in the event of your death. It takes planning and legal documentation to make sure it happens the way you want.

What are Your Goals for Your Estate?

Planning your estate starts with clearly defining your goals and objectives, which could include:

Providing for the financial security of your family: The most critical objective for most people is to secure the finances of their loved ones.

Taking care of the children: If you don’t name a legal guardian for your children, the state will, and it may not line up with your wishes.

Addressing special concerns or situations: These days, blended families are common. But in some circumstances, they can present problems in the distribution of an estate. Your estate plan can set legal boundaries around who is entitled to a share of your assets.

Avoiding probate: If you don’t have a will, your estate will be probated by a court that will decide who will receive assets, which may include relatives you had no intention of including. Assets with designated beneficiaries, such as life insurance policies and retirement plans, pass outside probate. Probate also costs your estate money and can delay the transfer of assets to your survivors.

Essential Steps to Creating Your Estate Plan

There are several easily accessible tools you can use to create your estate plan. These tools will get you started:

A testamentary will: Your most important estate planning tool is your will. Your will is a legally binding document that dictates how your estate will be distributed. It’s also where you name a legal guardian for your children. Wills are inexpensive and easy to set up, but they must be updated periodically to reflect your changing circumstances.

Power of attorney: Your estate plan is not just about what happens when you die. It’s also about what happens when you live but can’t make decisions on your own. A power of attorney names a person you trust to act on your behalf to make financial decisions if you’re unable.

Medical directive: This is similar to a power of attorney, but it is directed at medical providers. If you are unable, your medical directive provides explicit instructions for your preferred treatment.

Living trust: Also referred to as an Inter Vivos Trust, a living trust is a document that establishes a receptacle for your property and assets. A living trust is a form of ownership that holds title to your property and assets once they are transferred to the trust, which means they can pass to your trust beneficiaries outside of probate. With a living trust, you can also establish instructions on how your assets are to be managed, name beneficiaries, and establish timelines for the distribution of your assets.

Life insurance: Your surviving family will need capital to cover final expenses, pay off debts, and cover their living needs. If you haven’t accumulated sufficient assets to provide for that, life insurance is an inexpensive source of capital.

Seek professional guidance: Most people can get by with a simple will to ensure their assets are passed on according to their wishes. However, the more assets you have, or the more complicated your family situation is, you may need to consider a living trust. If you have a large estate of more than $10 million, you probably need to look at other types of trusts that can protect your estate from taxes and other settlement costs.

Your best course is to sit down initially with a financial professional who can assess your needs and help you map out the right plan. It’s also essential to meet with your estate attorney as your circumstances change to ensure your plan continues to meet your needs.