Financial Planning

Even if You’re Not Wealthy, Estate Planning is Important. Learn How to Get Started

By  Danielle Miura

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To ensure your wishes and goals are met at the end of your life, estate planning is vital. Though it can be an uncomfortable and tedious process, communicating your desires and creating a plan can give you the confidence to confirm that your estate will be taken care of according to your wishes. 

Estate planning can save many complications in the wake of a loved one’s passing. Regardless of the amount of someone’s estate, failing to leave a plan means leaving loved ones unprepared for the decisions they have to make and more obstacles to gaining the intended inheritance. Providing clarity in an estate plan will help save you and your loved ones from unintended stress. 

To get you started, I will give you an overview of estate planning, provide you with a helpful checklist, and help answer some common questions about the process.  

What Is Estate Planning and Who Needs It?

Estate planning establishes a collection of legal documents that outlines what you would like to happen to your estate upon your death or if you are incapacitated and unable to handle things by yourself. 

In addition to determining where your property will go, an estate plan can also include:

  • Decisions about your young children and their property
  • Minimize income, gift, and estate taxes
  • Avoiding probate
  • Your health care during your life
  • What happens to your body after death

In contrast to popular beliefs, estate planning isn’t only for the wealthy. Whether you have a little or a lot, we all have one thing in common: we can only take what we can fill in our casket. Estate planning ensures that your property and wealth are transferred as you wish and that there’s someone who can help you communicate your healthcare directives. 

Why Is Estate Planning Important?

Although most adults acknowledge that estate planning is important, nearly half of Americans over 55 do not have a will established. Many consider wills to be the main part of an estate plan. However, appointing a power of attorney, creating a living will, and establishing beneficiaries are all important aspects of an estate plan. 

An estate plan is a gift to your loved ones. Without these essential documents, your family may be burdened with many obstacles at the end of your life. Sometimes, when there is no estate plan in place, it can cause conflict between family members. At the end of your life and after you pass, the documents inside an estate plan can give your loved ones the information to ensure the right decisions are made on your behalf and your assets are passed down smoothly. 

Most Common Estate Planning Documents

Several documents make up an estate plan. Each document forms a powerful representation of your final wishes.

Guardianship

Guardianship states who you want to care for your children or any other dependent you are responsible for after your death or in the event you can no longer care for them. Usually, instructions for guardianship will be in a section of your will. 

Will

A Will is a legal document that outlines how you want your possessions to be transferred after you pass. An executor is a person who is elected to make sure that the wishes in the will are carried out. It is important to name someone you trust to be your executor. Whoever you decide to choose, let them know ahead of time. 

Trust

A Trust is a three-party agreement that allows the first party(the grantor) to give the second party(the trustee) the right to hold your assets on behalf of the third party(the beneficiary). Trusts can minimize taxes, put guidelines on the distribution of assets, and bypass probate. 

Power of Attorney

A Power of Attorney(POA) is a legal document that allows someone to select a person to act on their behalf in legal and medical matters. The individual designated as the POA doesn’t need to be a lawyer. However, they need to be someone you can rely on to make decisions if you’re incapacitated. You may hear this called a durable power of attorney. For example, if you have a stroke and are incapable of making decisions, the POA can make decisions for you, including paying your bills, signing forms for you, etc. 

Advanced Healthcare Directives

An Advance Healthcare Directive(sometimes called a living will or medical power of attorney) states what medical actions should be taken if you become incapacitated. 

What About Taxes?

Your estate plan should be established with taxes in mind. The ultimate goal is to leave the most amount of your money to your heirs and the least amount of money to Uncle Sam. An estate plan can avoid probate and pass assets while avoiding taxes. These are the types of taxes you may encounter:

  • An estate tax is a tax imposed on estates worth more than a set value. An estate tax is charged on the portion that exceeds the maximum amount, not the entire estate value.
  • An inheritance tax is a tax paid by someone who inherits assets from someone who has died. 
  • A gift tax is applied to gifts exceeding a certain dollar amount. The giver, not the receiver, will be responsible for any tax imposed. 

Estate Planning Checklist

Do you want to start putting together your estate plan but don’t know where to start? Use the estate planning checklist below!

  1. Make a list of your assets and debts. Include everything that contributes to your net worth. This may include vehicles, retirement and investment accounts, bank accounts, businesses you own, and other valuable property. 
  2. Gather important documents. You will gather documents associated with your estate, such as marriage certificates, divorce papers, insurance policies, business agreements, property deeds, vehicle titles, and bank account information. Place these documents somewhere safe, like a safety deposit box. 
  3. Choose your power of attorney and/or executor. Select someone you trust to be your medical and financial power of attorney, the executor of your will, and your trustees. It can be the same person, but it’s usually better to divide the responsibilities among a couple of individuals. 
  4. Draft your estate planning documents. This is the part of the process where you may consider working with a professional, like an estate attorney. 
  5. Talk with your family. Informing your family and friends about your estate plan will be very beneficial. Talking about your estate may cause conflicts, but it can prevent surprises, family stress, and clarify any questions while you are still alive.
  6. Review your documents regularly. Life happens and assets change. If you sell your business, house, or vehicle, you will want to change your estate plan accordingly. A divorce, marriage, or the death of a spouse can be all reasons to check your estate plan. 

FAQs About Estate Planning

Is estate planning the same as a will? A will is a means of determining what will happen to a person’s assets after they die. As shown above, a will is only one part of the bigger picture. 

How much does an estate plan cost? The cost of an estate plan can vary depending on a variety of factors. Drafting a will yourself usually costs about $150 or less. If you hire a lawyer, you can expect to pay around $1,000. However, these prices can increase if you need more complex legal planning. 

When is estate planning needed? When a person has assets or children they want to protect, estate planning becomes important.

Is a lawyer required to create a will? In some cases, you do not need an attorney to create your estate plan. If you have a complicated estate, a traditional face-to-face attorney is ideal. For those who have simple estate planning needs, you may find that online services might serve your needs better.

What happens if a person does not leave a will? If an individual doesn’t make plans for their estate and doesn’t leave a will or trust, the state law will apply. Not having a will or trust can impact your possessions and future medical decisions. 

This article reflects the insights and opinions of its author and is not a recommendation or endorsement of their views or services.

Danielle Miura

About the Author

Danielle Miura

Danielle Miura is a Fee-Only, Advice-Only Certified Financial Planner and Sandwich Generation Specialist. She is the founder of Spark Financials, a life and financial planning firm specializing in helping Sandwich Generation families. As a CERTIFIED FINANCIAL PLANNER™ professional, she specializes in comprehensive financial plan development, financial education, and financial research.

Disclaimer: To make Wealthtender free for our readers, we earn money from advertisers, including financial professionals and firms that pay to be featured. This creates a natural conflict of interest when we favor their promotion over others. Wealthtender is not a client of these financial services providers. Learn how we operate with integrity to earn your trust.