If you have assets, you have an “estate” – and you need a plan for it.
You may hear the word “estate” and think mansions and sprawling grounds; but you don’t have to be wealthy to have an estate. An estate consists of all the property a person owns, including real estate, cars, cash, and other assets. Anyone who wants their assets to be transferred to one or more surviving loved ones after they pass away should consider establishing a formal estate plan. This important set of legal documents can make it easier for your family to ensure that your wishes and needs are met if you’re unable to speak for yourself.
What is an Estate Plan?
An estate plan is a collection of documents that protects your assets and personal property (your “estate”) and explains how you want to pass them down. It documents your wishes and specifies exactly who will guard those wishes and act on them in your absence.
What Does an Estate Plan Include?
A will, which identifies who you want to:
- Receive each of your assets
- Be your children’s guardian
- Be an executor to oversee the estate plan process
A power of attorney, who:
- Makes financial decisions if you’re unable to
- Pays your bills, manages investments, and makes legal or business decisions
A medical power of attorney, who:
- Makes your medical decisions if you’re unable to
A living will, which:
- Documents your end-of-life preferences
A trust, which:
- Controls how and when your assets are distributed
- Reduces or eliminates estate taxes
What Are Three Critical Functions of an Estate Plan?
1. Protects your assets for your family (or other heirs)
An estate plan can act as a safety net that helps preserve the value of your assets, minimizes wait times for disbursement, and helps ensure the legacy you envisioned is carried out.
2. Gives you a say in who receives your belongings
By creating a will, you can name your assets, beneficiaries, and an executor who will carry out your wishes after you pass away.
3. Allows you to choose who will make your decisions
An estate plan often contains a durable power of attorney form and a healthcare proxy form – two vital legal documents that ensure that your plan will be carried out the way you want it to. A durable power of attorney form appoints a trusted relative or friend to manage your legal and financial affairs should you become incapable.1 And a healthcare proxy form gives someone permission to make healthcare decisions for you based on your wishes if you’re unable to do so.2
If you have a durable power of attorney or a healthcare proxy, it’s important to include that information on accounts such as IRAs, 401(k) plans, and insurance policies.
How to Get Started With Estate Planning
- Begin to calculate your worth by creating a list of all of your financial assets, personal property, and document liabilities
- Ask a financial professional to refer you to a qualified estate planning attorney
- Determine (or update) your beneficiaries
- Revisit your estate plan regularly
How Life Insurance and Annuities Can Help With Estate Planning
Life insurance and annuities can play an essential role in estate planning. Life insurance can provide a source of income for surviving family members. Proceeds from life insurance can typically bypass the probate process (the distribution of an estate) so they can provide an immediate source of cash that survivors can use to pay off taxes or remaining debts, such as a mortgage.
Annuities with a named beneficiary can generally avoid the probate process, potentially providing income directly to beneficiaries without delay.
Talk to a financial professional to learn more information about the importance of estate planning and partner with other professionals to help you develop an estate plan.
1 What Is the Difference Between Durable and Springing Power of Attorney? Agingcare, March 2018.
2 Health care proxies. Medicare Interactive, November 2019.
Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax, or accounting advice. Clients should confer with their qualified legal, tax, and accounting professionals as appropriate.