Estate Planning

When it comes to personal finances, a lot has changed over the past few decades. It used to be that estate planning was something only the wealthy had to worry about. But these days, many middle class families are finding it’s worth their time to do estate planning.

An estate plan covers a variety of different scenarios — it can help protect you if you get in a car accident and need medical care while unconscious, or keep your finances private if that same car accident kills you.

Estate planning is basically a conversation that culminates in a collection of documents. There are many different facets to it and we’ll cover the highlights here.

What Is an Estate Plan?

An estate plan can vary by person, but in general, it includes these items.

• A will
• Trust(s)
• Durable power of attorney
• Healthcare directive
• Beneficiary designations
• Guardianship designations

As you can tell, this isn’t something you want to scrawl on the back of a cocktail napkin. That’s why there are attorneys who specialize in estate plans.

You want to make sure you receive detailed plans tailored to your circumstances.

Wills

A will is a legal guide for what you want to happen to your possessions when you die. One of the most important parts of a will is who you name executor.

This person becomes responsible for carrying out the wishes outlined in your will. If you don’t name an executor, this person is selected by a judge — it’s usually your closest living relative.

When you die, your will goes through probate, which is a public process involving a court. Probate can take years. Having a valid will makes this process easier, but you still go through probate.

And probate is public, which means any information that goes through this process becomes part of the public record. Many people don’t want details of their estate made public.

Trusts

Trusts do not go through the probate process, so they can be a good way to efficiently pass assets on to beneficiaries.

There are various types of trusts (revocable and irrevocable) for different purposes (legacy, charitable giving, special needs, and so on).

When you create a trust, you are the trustor. You also name a trustee — the person who will control your trust, as well as beneficiaries, who receive the assets within it.

Power of Attorney

A power of attorney gives someone (the agent) the right to act on your behalf when it comes to financial matters. A durable power of attorney lasts after you’re incapacitated. Essentially, if you are hit by a car and unconscious, this is the person who makes sure your mortgage gets paid.

Oftentimes, the executor, trustee, and the financial power of attorney are the same person simply because things go more smoothly when these three roles work well together. That said, they do not need to be the same person.

There are different types of powers of attorney. Medical powers of attorney are often granted as part of a broader healthcare directive (sometimes called an advanced care directive), which details your wishes in case you’re unable.

You can tell your agent what you’d like them to do. The rules and forms for these directives vary by state.

Your estate plan also needs to detail who gets what. Things like retirement accounts and life insurance policies don’t go through probate, and instead, pass directly to the named beneficiaries.

That means you need to name who you want to be the beneficiary on these accounts. (If you have a trust, it’s possible to name a trust as the beneficiary for these.)

Children

Finally, if you have kids, your estate plan needs to detail who you want to be their legal guardian if anything should happen to you.

You’re not legally required to notify this person (they don’t need to agree to it), but most people have this conversation ahead of time to ensure whoever they name as guardian is comfortable taking on that role should the need arise.

Worst-Case Scenario

For most people, estate planning isn’t fun. It requires you to think about, in great detail, a lot of worst-case scenarios that we’d prefer not to think about.

But planning ahead ensures that, if any of those worst-cases were to occur, your family would be taken care of.

And what’s more, that your wishes are carried out. Creating an estate plan ensures you make the important decisions, versus a probate judge, or the wrong person.