While it may be a difficult topic to think about, estate planning is an important step you can take to protect the interests of your family. A well-prepared estate plan will help you ensure your wishes are carried out and your loved ones are taken care of once you're gone.
It can be a hard conversation to have with family, but if you pass away without a plan in place, your family members may be left to sort out a legal mess in court.
Estate Planning Basics: Comprehensive Overview
An estate planning overview will give you a better idea of what to expect. You should familiarize yourself with the basics of wills, trusts, living wills and/or health care directives, probate, and general estate administration tasks.
On this page, you'll find easy-to-understand resources on:
Estate Planning Affects Everyone
There are different tasks to complete depending on your stage in life and how you are affected by someone's estate plan. You may be preparing for your own future, are the surviving spouse, or stepping in as a health care proxy for a loved one. You might be named the executor of a parent's estate or be sorting through an unplanned estate with no will. You could be the named beneficiary of an estate in a will, but are curious about planning strategies to avoid probate.
Many things come into play with an estate plan. Life insurance policies, state laws and exemptions, federal estate tax, retirement accounts, and tax planning are key financial tasks on one side of estate planning.
The other side is more personal. Making funeral plans, planning financial gifts and sentimental items to pass on, choosing someone you trust for end-of-life medical care, and other similar choices can be emotional.
Being informed can help bring peace of mind. Estate planning is the most essential way to prepare for future incapacity, reduce liabilities to your wishes, and clarify your bequests. No one wants to think about these choices — but it is the best way to care for your legacy and loved ones.
Explain Your Wishes: A Last Will and Testament
After a loss, your last will and testament can help make the transition as painless as possible for your loved ones. Your property will be transferred quickly and many tax burdens can be avoided.
A will is a legal document that typically:
- Describes the estate including money, property, real estate, bank accounts, IRAs, and more
- Names individuals who will receive specific property (called beneficiary designations)
- Spells out any special instructions you may have
- Nominates a responsible individual (called an executor) to oversee the duties related to the estate's administration
Depending on your wishes and the size of your estate, your will could be anywhere from a single page to a lengthy document.
Explain Your Health Wishes: Health Care Directives and Living Wills
While a will allows you to express your financial and property wishes once you're gone, a living will or health care directive expresses your health care preferences while you're still alive.
With a living will, you'll be able to designate the medical treatment you wish to receive, should you become unable to communicate your wishes due to illness or incapacitation.
A health care power of attorney, on the other hand, allows you to designate a person who can make medical or end-of-life decisions on your behalf.
Explain Your Financial Wishes: Financial Power of Attorney
You will explain your accounts, retirement plans, and current financial situation in your will. An executor will make sure these wishes are followed. A financial power of attorney is different.
You can choose someone to act in your financial interests at any time (nondurable power of attorney) or if you are incapacitated (durable power of attorney). Some states have guidelines on who this person can be, but generally, you can pick anyone you trust.
Support Loved Ones Financially: Trusts and Revocable Living Trusts
Trusts are another estate planning tool you can use to manage your property and avoid tax burdens. A trust can either be created during a person's lifetime or after death by a will.
There are a number of different types of trusts serving a wide range of functions. An asset protection trust, for example, is designed to protect a person's assets from future creditors. A charitable trust, on the other hand, is used to benefit a particular charity or cause. A special needs trust can financially protect someone needing additional care throughout their lives.
Probate and Taxes
If a loved one dies without a will, probate could be necessary. Probate is the court-supervised process of sorting out a deceased person's affairs. It may be important for you to find professional help during this process.
An estate planning attorney will be able to guide you through the probate process and represent your interests in court. They can also discuss tax law, gift tax, and other considerations for handling your finances and property.
Two Approaches to Estate Planning
Many estate planning documents can be created with DIY forms. This works well for people with simple assets or no minor children. You can create a comprehensive estate plan and be guided through the whole estate planning process.
For more complex estates you will want to consider finding and speaking with a local attorney.
The topic sections below can help you learn more about common estate planning topics and important articles on those topics.