What is estate planning?
Over the years, I have received plenty of questions about creating a will and estate planning.
After all, anyone over the age of 18 probably needs to have at least some part of an estate plan.
Quick note about an easy giveaway: Vicki and Amy are also giving away three of their Estate Planning 101 books away. Simply leave a comment below and I will randomly select three winners.
Recently, I asked you, my readers, what questions you have about estate planning. Some of the questions you had included:
- What is estate planning and why is it important?
- Is there a situation in which you would not need an estate plan?
- At what age should I start estate planning?
- Should I do my estate planning myself or hire a lawyer?
- What is the difference between a trust and a will?
- Who should have a will or trust?
- Who is best to make the executor of your estate plan?
- What happens if a person passes away without an estate plan?
- What are the main steps in estate planning?
Because this is not an area that I’m an expert in, I gave these questions to Vicki Cook and Amy Blacklock who are experts in the area of estate planning.
Vicki Cook and Amy Blacklock are coauthors of Estate Planning 101 and cofounders of the award-winning personal finance website Women Who Money. Vicki’s also the founder and blogger behind Make Smarter Decisions, and Amy’s the founder and blogger behind the award-winning site Life Zemplified. Additionally, they’ve been frequent contributors to GOBankingRates, Wealthfit, Medi-Share, and various personal finance sites around the web.
Today, they will be answering many of your common questions and help you get started with estate planning.
Lastly, Vicki and Amy have provided free estate planning printables for my readers. There is no sign up required. Simply just click here and you can use these free estate planning checklists right away.
This isn’t sponsored or an affiliate post (I am not getting paid whatsoever!). I simply thought this would be a great way to help you learn more about estate planning. I hope these questions help take some of the stress out of estate planning for you.
What is estate planning? + other common questions
1. What is estate planning and why is it important?
First, we’ll start by debunking the myth that estate planning is just for people who are rich, old, or sick. While people in those positions need an estate plan, there’s a very good chance you need one (or at least parts of a plan) too.
Why would a young, healthy adult need an estate plan? Because an estate plan is an essential tool that’s more than just a last will and testament or a trust. Critical medical and financial documents are also crucial parts of your estate plan.
You want an estate plan in place because it provides you with protection and control.
- You in the event of mental or physical incapacitation (inability to care for or make decisions for oneself) due to a severe illness or injury.
- Your minor children through naming a legal guardian for them.
- Your estate (assets & personal possessions) by directing distributions after you pass away.
- Your loved ones by naming them beneficiaries of your estate.
Don’t make the mistake of assuming that the people you love know what you would have wanted or be able to carry out your wishes if something bad happens to you.
Without having all of the pieces of your estate plan in place, you give up control over who can make certain medical and financial decisions for you when you’re unable, along with who’ll become the guardian of young children and how your estate is divided.
2. Is there a situation in which you would not need an estate plan?
Anyone over the age of 18 needs at least some parts of an estate plan in place.
A 21-year old who is in college and lacks assets may only need an advance medical directive (living will and health care power of attorney) and HIPAA forms to guide their health care treatment and name someone to make medical decisions in their place.
They may also choose to have a financial power of attorney document so a trusted loved one could manage their finances should they become incapacitated. But at this age and stage of life, they likely don’t need a will.
As you get older and your life situation gets more complex, a will and/or trust becomes a necessary part of your estate plan.
Growing assets and a growing family are two important reasons to have a legal will in place. And some people choose to add a trust as a tool to protect their assets and loved ones. This is especially true in cases of blended families, a special needs dependent, an unmarried couple, and more complex family or financial situations.
If you have very few assets that don’t already have named beneficiaries, you don’t have kids, and your life situation is fairly simple – start with an advance medical directive and power of attorney documents. You can add a will over time, and if your life situation dramatically changes – you can consider drafting a trust.
3. Should I do my estate planning myself or hire a lawyer?
Tackling DIY (do it yourself) projects is a great way to save money, and there are plenty of tasks that make sense to do on your own.
In terms of estate planning, advance medical directives are forms that most people can fill out without the help of an attorney. (You may want to consult with an attorney if you have very challenging family circumstances.) Contact your doctor, local hospital, or state medical association to get these free forms. You may also be able to go online and download your state-specific documents.
While it’s possible to create your power of attorney documents or use an online document creation service, consider using an attorney to develop these essential legal papers. If your paperwork is invalid, your heirs can’t use them, and the courts may have to appoint a guardian or conservator to make essential decisions for you if you become incapacitated.
Online services also offer “bundles” that include a will or trust creation. Unless you have a small, straightforward estate and an uncomplicated family situation, work with an attorney to draft a will or trust.
Invalid documents can result in you being intestate (without a will), which means that state law determines who gets your assets and who becomes the guardian of your minor children.
It may be better to DIY your documents than to not create them at all. But if your situation has any complexity, this is one project that’s better left to professionals.
4. What is the difference between a will and a trust?
Wills and trusts are similar in that both tools are used to handle assets after your death.
Wills are common legal documents that tend to be relatively simple and reasonably priced. Even with a will, your estate goes through the probate process, which can be lengthy and costly for complex estates.
Your estate also becomes a public record. Wills are not helpful in the event of incapacitation because they only kick in after your death.
There are various trust products to meet the needs of unique situations that a will alone cannot.
A living trust allows you to maintain control of your assets. But you must retitle assets in the name of the trust to become trust property.
Trusts are more expensive than wills, but you can avoid probate (mostly) by drafting a trust, and your trust proceedings don’t become a public record. A trust also protects you in the event of incapacitation. This is because your named trustee can take over, eliminating the need for a conservatorship.
5. Who should have a will or trust?
It makes sense for most people to have a will after they start acquiring assets or have a spouse/partner or children to protect.
Don’t put off writing your will until you get older, have more money, or get sick or hurt. While you hope it’s a document that won’t be used for decades, the feeling of having it in place is priceless.
While anyone may want the benefits a trust offers, people in the following situations should consider whether a trust would help them meet their goals:
- Those with minor children
- Persons in blended families
- Partners in unmarried couples
- Owners of property in different states
- Business owners
- Those with challenging health issues
- Those with difficult family situations
6. Who is best to make the executor of your estate plan?
People who are married or in committed relationships tend to choose their spouse or partner as their executor. While that makes sense for some time, a different executor may need to be named as they age or when one person passes away.
If you decide to name an adult child as executor, determine who best fits the job. Your executor needs to be responsible, patient, and financially stable. They should also have strong communication skills.
A trusted relative or friend may agree to the role for single individuals or for people who are not comfortable having their partner or children in this vital position. You can also hire a fiduciary (an individual at a bank or trust company) to serve in this role.
7. What happens if a person passes away without an estate plan?
When you die without the legal documents in an estate plan, you are considered intestate. State intestacy laws and a probate judge determine who gets your things and who is the guardian of your minor children.
Succession laws are similar in most states, and relatives generally inherit assets in this order: surviving spouse, children, grandchildren, parents, siblings, nieces or nephews, and grandparents.
If you have a complex family situation, there may be a lot of conflict over your estate if you don’t have a plan in place.
8. What are the main steps in estate planning?
We’ve broken down estate planning into eight steps. While that may seem like a lot, this process takes you from setting goals all the way to updating your plan through life’s changes.
- Create estate planning goals – Think about what you want your estate plan to accomplish. Example goals include:
- Protecting and providing for yourself and anyone that depends on you in the event of a disability
- Protecting and providing for your spouse or partner, minor children, or other loved ones in the event of your death
- Naming a guardian for minor children and a personal representative to manage your estate
- Helping pay for expenses (college, wedding, down payment on a house) for your kids or grandkids
- Supporting charitable organizations that are meaningful to you
- Minimizing family conflict
- Organize your paperwork –You can determine your “estate” by inventorying everything you own (assets) and subtracting anything that you owe (debts). This becomes your net worth, and you should track this value over time. Ideally, your net worth will continue to rise as you increase your assets and pay down debt. Creating an inventory of what you own and owe, helps throughout the estate planning process.
- Designate (and update) beneficiaries – Review all of your accounts and policies that have beneficiaries or transfer-on-death or payable-on-death options. Keep in mind that designated beneficiaries take priority over what’s written in your will.
- Determine your executor and guardian for kids – You’ll need to name an executor (aka personal representative) in your will. This person manages your legal affairs and finances, including paying bills and distributing your assets after you pass away.
- When choosing a guardian for your children, consider who can best provide the love and care they’ll need daily. The same individual can also manage the financial assets you leave behind to your children, or you may name a separate property guardian to handle them.
- Your chosen representative and guardian should be responsible, caring, patient, and trustworthy. These can be demanding and time-consuming jobs, so make sure they’re willing and able to assume the roles.
- Note: If there is no surviving parent, the courts will step in and name a guardian for your kids if you miss documenting one in your will or don’t have a will at all.
- Draft essential protection documents – For most people, an estate plan needs an advance care directive, a financial power of attorney, and a will. At this point, make notes about who and what you want to include in each of these documents. You want to make sure you take time to reflect on your decisions and talk to people involved before you put everything in writing.
- Consider a revocable living trust – There are many types of trusts, but the most common is a living trust, specifically a revocable living trust. These tools help your assets avoid the probate process and pass to heirs more quickly. Since probate becomes a public record, trusts also help you maintain privacy.
- Make it legal by putting your plan in writing – Online document services such as Legalzoom.com, RocketLawyer.com, Nolo.com, Lawdepot.com, and TrustandWill.com may be an option if you have a simple estate and your family situation is not complex.
- But it may save you (and your loved ones) time and money, in the long run, to work with an attorney. Lawyers may suggest options you would not have considered, and they’ll make sure your documents use the proper language, so they’re valid when needed.
- Pro tip: Check your employee benefits to see if you can work with an attorney on estate planning at a reduced cost.
- Keep going – Estate planning is a marathon, not a sprint. You’ll revisit your plan as you age but also after significant life events. The most important thing is getting started.
While it may be an emotional process to think and talk about death, it’s essential to begin the conversations. Your loved ones may find relief in knowing you have a plan in place, and it may even prompt them to get their affairs in order too.
9. Can you tell me more about Estate Planning 101?
We wrote Estate Planning 101 to help people understand that estate planning is for everyone. While talking about incapacitation, death, and leaving our loved ones behind is difficult, estate planning is also empowering.
An estate plan helps ensure that your wishes are followed and that your loved ones aren’t put in challenging positions to make decisions for you during a very emotional time.
Estate Planning 101 will help you learn the ins and outs of the process. Growing your understanding of these topics is essential if you decide to DIY or use an online service to create your plan.
But learning about estate planning is also beneficial when you work with an attorney.
Your consultations will be much more productive when you’ve spent time inventorying your estate, considering how you want your plan to look, who you want it to include, and the questions you have about your unique situation.
We also go beyond estate planning in our book! You’ll learn about strategizing for retirement and tax planning. And we go beyond the numbers too.
There are checklists to guide you through the estate planning process and help you create an emergency binder. You’ll also find some thought exercises and action steps to help you consider and create the legacy you want to leave behind.
Estate Planning 101 is a comprehensive guide written in an easy-to-understand format to help you protect yourself, your loved ones, your growing estate, and your legacy. Today, tomorrow, and years from now.
Have you started estate planning? Why or why not?