Wills and Estate Plans: Why you need them and steps to get started.
You might be surprised to learn that estate planning is an important part of your overall financial plan — even if you’re young or don’t have many assets. Your estate includes anything you own, from money in your bank accounts, to your car, to a coin collection. An estate plan gives you control over how your assets are distributed, who will care for your dependents — and who can make decisions on your behalf before and after you pass away.
“Having a trust gives you control over your assets, both while you’re alive and after you’re gone,” explains Michael Foster, Senior Vice President, Private Client Advisor for Commerce Bank. Setting aside time now to make decisions about your estate and create a plan can go a long way toward giving you and your loved ones peace of mind later.
Why you need an estate plan
If you pass away without a will, the foundation of any estate plan, the courts in your state will decide what to do with your property. Unfortunately, that can mean your wishes about who gets what aren’t followed, which can lead to added stress and delays for your loved ones.
What does an estate plan include?
An estate plan is a collection of legal documents that explain what decisions you want made if you’re not able to make them, whether you’re temporarily incapacitated or you’ve passed away. In addition, an estate plan lets you name specific people to make decisions on your behalf if you’re unable to. An estate plan also details your wishes for distributing your assets after you’re gone — to family members, friends, or even your favorite charities.
Below are some of the most common components of an estate plan.
A will provides specific instructions about how you want your assets to be distributed after you pass away. It also names a guardian if you have minor children, along with any instructions relating to their care. A will can also specify wishes related to your funeral and funeral expenses.
- Trusts can be a useful addition to an estate plan, giving you more control and flexibility over how and when your assets are transferred and distributed. There are many types of trusts that serve different purposes. For instance, a trust can assign a trustee to manage an inheritance for children who are still minors.
- An executor is the person you designate to carry out the instructions in your will. “It’s important to choose someone you trust, who is accountable and who will follow the instructions in your will,” says Foster. “Make sure your executor is aware of the role, is willing to do it and has a copy of your will,” he adds.
- A medical directive, or a living will, specifies what kind of care you want (or don’t want) in the event that you’re physically or mentally unable to speak for yourself. A living will also outlines your wishes for end-of-life care.
- A healthcare power of attorney and financial power of attorney are documents that let you designate a person to make medical decisions or manage your finances on your behalf if you’re unable to. This can be helpful if, for instance, you’re in a car accident and are temporarily incapacitated.
How to get started with estate planning
“The best way to get started is to make a list of all your assets and their value,” explains Foster. This includes physical and non-physical assets you own, like cars, collections, your home, bank accounts, stocks or retirement accounts. It’s also a good idea to review and update any accounts with beneficiaries, such as life insurance policies and retirement accounts.
Next, review your list and think about what you’d like to do with the items after you’re gone. For instance, you might want to split some of your financial assets between favorite charities or provide care or education funding for a relative. Or you may want to leave a particular item to a close friend.
If you have young children, choose a guardian in the event that you and your spouse are unable to care for them. Consider your wishes for end-of-life care and, finally, think about who you would trust to handle your estate and make important decisions on your behalf.
Preparing estate plan documents
“Once you’ve identified your assets and made decisions, the next step is to meet with an estate planning attorney who can write the documents for you according to your needs and wishes,” says Foster.
It might be tempting to prepare a will and other estate plan documents yourself using online software. But keep in mind that it might not be legitimate according to the laws of the state you live in. An experienced estate planning attorney can customize your documents based on your wishes and can also recommend options for helping you and your heirs minimize estate taxes.
Creating an estate plan doesn’t have to be expensive. A simple will can cost as little as a few hundred dollars, although more complex plans are usually higher.
Preparing for peace of mind
In addition to safely storing your estate plan documents, it’s a good idea to compile a list of your accounts (including passwords) and key contacts, making sure that your executor knows how to access them. Include all your accounts, from financial to social media to any membership subscriptions. You may also want to discuss your plans and explain decisions with family members so that they clearly understand your wishes.
“It’s a good idea to review your estate plan documents every few years and whenever you experience a new life stage like marriage, blended families, empty nest or retirement, or whenever you have a beneficiary change,” says Foster. “This can help ensure that your plan is up to date, and your wishes for today and tomorrow are in place.”
By setting aside time now to create an estate plan, you can enjoy peace of mind knowing you’ve done everything you can to preserve your legacy, protect your heirs and make a challenging time easier for your loved ones.