Estate Planning
Estate planning is often considered to be something that only billionaires need to worry about. However, everyone should take action to plan how their estate should be passed down at death.
Having an understanding of the different options available to you when it comes to deciding what happens with your assets and liabilities when you pass away can be invaluable for those left behind.
What Is Estate Planning?
Planning for incapacitation or death is never an enjoyable activity, but doing so can bring more than just peace of mind for you and your loved ones. The benefits of having an established estate plan can range from a simpler transition of assets to reducing a tremendous tax burden on your family or ensuring your belongings aren’t inherited by the wrong person.
The term “Estate” describes everything a person owns. Think of it as a person’s net worth i.e. the sum of all their assets (investments, real estate, business interests, trust accounts, etc.) less their liabilities (mortgage, debts, etc.). In a legal sense, “estate planning,” is a way for people to control the distribution of their estate upon their death. An estate plan can be as simple as having a will and naming a beneficiary for a 401(k), or as complicated as a will that funds multiple trusts for different purposes.
Not Sure Where To Start?
- Basic Documents
- Beneficiary Designations
- Ownership
- Types of Trusts
- How it applies to you
Living Will, Last Will & Power of Attorney
There are many different types of documents that can be established to indicate a person’s wishes when they are incapacitated or no longer living. Zoe’s Guide To Estate Planning goes through the most common and essential documents to have.
A living will is used to communicate your wishes regarding certain medical treatments while you are still alive. This is a very important document as it lets your loved ones and healthcare providers know your wishes for life sustaining treatments (ie. life support) in the event that you are not able to speak for yourself.
A last will has specific instructions for the distribution of your estate upon death.
It is the document that lists who gets what if you pass away, thereby helping avoid disagreements or additional emotional stress for your loved ones. Additionally, if you have minor children, a will can name a guardian for your children in the event of your death.
There are two main types of powers of attorney, known as POAs. A general (or durable) power of attorney designates someone to execute financial decisions on your behalf. A medical (or healthcare) POA designates someone to make medical decisions on your behalf in the event that you are unable to do so. Any decisions that are not clearly included in your living will are made by the person to whom you have given POA.
What Is The Size Of Your Estate?
Discover the crucial elements of planning your estate.
Types of Trust
A trust is a legal agreement between an asset owner and a third party (normally an individual or an institution). The agreement gives control of an asset or an estate to a trustee, who then manages it on behalf of the owner for the beneficiaries. There are several different types of trusts, but the most common are revocable trusts and irrevocable trusts.
Per its name, one can change or cancel the terms of a revocable trust, including the trustee or beneficiaries. With a revocable trust, you can add or withdraw assets from the trust. You can also discontinue the trust.
An irrevocable trust cannot be changed once it has been created. This means that you cannot adjust the terms, modify beneficiaries, or remove assets from the trust once it is established.
Do I Need A Financial Planner for My Estate?
The modern wave of wealth management has enabled more accessible estate planning. Technology has made access to planning products economical for all, not just the ultra-wealthy. The bad news is that technology has also brought a 24-hour news cycle right into our pockets and magnified our behavioral biases.
The value of a qualified wealth planner is not their ability to “beat” the market but to help you stay on track with what you are trying to accomplish with your long-term financial plan. A great advisor will want to understand what you value, what keeps you up at night, your goals and aspirations, and then work backward from there in deciding the type of estate plan that is best for you and those you care about.
Disclosure: This page is not investment advice and should not be relied on for such advice or as a substitute for consultation with professional accounting, tax, legal or financial advisors. The observations of industry trends should not be read as recommendations for stocks or sectors.
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