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Estate planning 101

Having a smart estate plan is essential for everyone鈥攔egardless of assets, age or income. Along with helping ensure your assets are distributed according to your wishes, estate planning can also help minimize taxes, protect your beneficiaries and allow you to appoint trusted individuals to make decisions on your behalf if you鈥檙e unable to do so in the future.

What is an estate plan?

You might think estate planning is something you can put off until your later years, or that it's just for the super wealthy, or both. But setting up a clear path for what happens to your property and your family after your passing can help make life for your heirs much easier in a time of stress and grief. 

An estate plan is a set of legal documents and arrangements that outlines how a person鈥檚 assets and affairs should be managed and distributed during your lifetime and following your death. Having an estate plan can help provide peace of mind that your wishes will be honored, your loved ones will be cared for, and potential legal and financial complications can be minimized. An estate plan often has several key components:

Will

This basic legal document outlines who will get what upon your death鈥攚ithout having the state step in and make those decisions, which can be a headache for your heirs and could cost them more money in the long run.

A will is especially important if you are a single parent or have young children. Without proper planning, they may have to go into a guardianship while the legal system decides who your children will live with in the future. Plus, a judge may decide on a guardian you'd never have chosen yourself. By having a will in place that states who your children's guardians will be in case something happens to you, you can ensure that they will be raised by whomever you see fit. It鈥檚 important to note, the guardian must agree to this arrangement, so it's a good idea to have a conversation with them before finalizing this part of your will. 

Laws governing wills can vary state-to-state, so consulting with locally licensed attorneys can ensure wishes are represented accurately in any will.

Trust

A trust is a legal arrangement that can provide more control over how and when your assets are distributed. Here are a few important things to keep in mind about trusts:

• If you hold properties in more than one state, your estate could be subject to probate in each state. However, if you establish a trust and transfer ownership of the properties to the trust, this may eliminate that requirement.
• A trust can be set up for minor children. It will determine how the assets they inherit will be used to support them, who will make those decisions and when the children can take over that fund themselves, if ever.
• Trusts can be used to provide for children with special needs without jeopardizing their eligibility for government benefits. 

Powers of Attorney

While a will dictates what happens after you pass away, what if something happens to you while you鈥檙e alive and you can't make decisions for yourself, who will be in charge? Who will make sure that your bills are paid and that medical decisions are made with your best interests and wishes in mind? Assigning a power of attorney (POA) allows you to appoint someone to make decisions and take actions on your behalf. There are different types and scopes of POAs, including those related to finances and healthcare. 

Keep in mind that those roles may be held by different people and you can set limits on when and how much control someone has.

Laws governing powers of attorney vary state-to-state and can be very restrictive. Individuals should consult with locally licensed attorneys to ensure their power of attorney will be valid and convey the anticipated powers in their local jurisdiction.

Storing estate planning documents

Keeping your estate planning documents safe and in an accessible location can help make it easier for the executor of your estate and your family members to find this information when needed. Some tips for storing estate planning documents include:

• Keep original hard copies in fireproof safe
• Upload a digital copy to a secure cloud storage or external hard drive 
• Inform your executor and family members about the location of documents and how to access them
• Store copies with your attorney, financial professional or estate planner

Reviewing your estate plan

Like other parts of your financial plan, it鈥檚 a good idea to periodically review your estate planning documents to ensure they are up to date and still align with your wishes. Following certain life events, like marriage, divorce or the birth of a child, consider meeting with your attorney or a financial professional to make any revisions to your beneficiaries or power of attorney if needed. 

Regardless of your age or financial situation, taking time to create a well-thought-out estate plan can help you protect your legacy, care for your loved ones and plan for the unknown. Laying out your wishes now can help promote peace of mind for you and your family for years to come. 

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