Have you ever watched the track and field races during the Summer Olympics? One event that fascinates me is the relay—when runners work together to win. And the symbol of their teamwork is the baton, which they transfer seamlessly from one runner to the next. Olympians know that if they drop the baton, the race is as good as over!
Estate planning is the legal and financial process of “passing the baton” to the next generation. It’s making sure that responsibility and wealth are transferred to the right people in the right way. You don’t want the handoff to be sloppy. You want this process to be smooth and controlled—just like those world-class athletes executing their handoff!
Estate planning might feel scary, overwhelming or simply boring. But I can guarantee that you’ll feel more confident about your future after you’ve made and communicated these decisions to the people you care about most. So, let’s dive in, people!
What Is Estate Planning?
Estate planning is the process of deciding what will happen to everything you own after you’ve passed away. It involves creating binding, legal documents to make sure that your wishes are carried out.
Unsure how to talk about your end-of-life wishes? Use this free guide.
The word estate refers to your assets (the stuff you own that has monetary value): houses, cars, jewelry, investments, military coin collections (yup, I collect military coins. There’s your fun fact about Hogan!). Your estate plan also clearly delegates authority to people you trust to make medical, financial and legal decisions for you if you can’t.
Estate plans aren’t just for old, wealthy people. Every adult needs an estate plan! It allows you to remain in control of what you own. If you die without a plan in place, the state gets to decide what happens to your things. And your family could spend months or years in probate court, instead of simply weeks.
And by the way, an estate plan is more than just a legal chore. Take this as an opportunity to think about your legacy. If you have children, how do you want them to remember you? Are there any special instructions you’d like to have carried out at your funeral? Who do you want to bless with your wealth? At the end of the day, it’s not about protecting your stuff. It’s about leveraging your wealth and possessions for good.
6 Steps to Estate Planning
Estate planning has a lot of layers and details to it, so let’s break it down as simply as possible. Here are six steps you can take to start making your plan.
1. Make a list of all your assets.
Your assets are the things you own that make up your estate and contribute to your overall net worth. This includes items such as:
- Your home and real estate properties
- Cash in checking and savings accounts
- Retirement and investment accounts
- Stocks, bonds and CDs
- Businesses you own
- Valuable possessions, such as jewelry, antiques and furniture
Do an inventory of your wealth, whether your estate is worth $200 or $2 million! Remember that every person over the age of 18 needs an estate plan—or at least a will—to make things easier on their family if something happens to them.
2. Gather the documents you’ll need.
After you’ve made a list of your assets, you need to gather corresponding paperwork and important documents related to your estate. Here’s what I’m talking about:
- Life insurance policy
- Long-term care insurance policy
- Housing or land deeds
- Vehicle titles
- Marriage license
- Divorce papers
- Military discharge papers
- Partnerships or business agreements
If there are usernames and/or passwords associated with any of these accounts or documents, include that information too. All of these documents need to be stashed together in a secure place, such as a safe-deposit box or a legacy drawer. Once you’ve created your estate plan documents, you’ll add these to the drawer. Make sure the executor of your will and important family members know where to find it!
3. Have a family talk.
Most of the time, surprises are fun—but not when it comes to your estate plan! If you’re appointing someone to execute your will or serve as your power of attorney, then you need to let them know ahead of time. Sit down with your family and make sure that everyone is on the same page about what will take place if something were to happen to you.
A big part of estate planning is deciding who you trust to execute your will and make financial and health care decisions on your behalf. The legal word for these people is fiduciaries. It sounds like a fancy word, but a fiduciary is simply someone who’s obligated to act in your best interest. The root of the word itself comes from the Latin word for trust.
No matter what your family status is, you need to talk with your family and friends who will be impacted by your estate plan.
- If you’re married, plan a special time to talk with your spouse about your estate. You’re teammates—so make sure that you’re working toward the same goal!
- If you’re single or newly single, you’ll want to sit down with your family and close friends to discuss your estate plan.
- If you have children, you need to spend some time thinking through who you’d like to choose as their guardian. If they’re of an appropriate age, involve them in the conversation so they’re not caught off guard by the decision after the fact.
4. Figure out if you need to meet with an estate planning attorney.
I can cut my own grass. But replace a roof after storm damage? No, thank you! I know when it’s time to get professional help. Estate planning is one of those things that looks different for each person, depending on the type of job you need to get done. If you’re young, single, have a small estate and a straightforward family situation, then you’re probably fine creating a will online and calling it a day—there’s no need to meet with an attorney.
If your estate is a decent size or you have particular family concerns, then it’s time to meet with an attorney. There are a few reasons you’d want to meet with an attorney.
- If your situation is complicated. The larger your estate, the more complicated your estate plan will be. Don’t risk your family’s financial security by making this a DIY project.
- To avoid federal estate tax. When you die, Uncle Sam steps in and takes a portion of your wealth before it passes on to your children or the organizations you want to support. You can work with a pro to avoid estate taxes so your money can be used for the purposes that you have in mind!
- To help you understand state-specific laws. Estate planning laws vary throughout the country, so working with a knowledgeable local attorney will help you make good decisions—especially if you have assets in various states.
If you’re looking for a good estate planning attorney, my first piece of advice is simply to ask around. Talk to your financial advisor. Get a referral from your tax pro. Ask your parents. Read online reviews. Then, get an appointment on the calendar!
5. Start planning!
Okay—for all you people who love details, get ready to nerd out. If you’re more of a free spirit type, buckle down and just get it done. You’ll get through it. I promise.
An estate plan is made up of several legal documents that a lawyer typically creates and you sign. You keep copies of those documents and let your family know where to find them in case something happens to you. The basic paperwork in an estate plan usually includes:
- Living trust
- Power of attorney
- Living will
- Umbrella insurance
Let’s do a quick recap of each one.
A will (or last will and testament) is a legal document that tells other people what you want done with your possessions when you die. Every adult over age 18 needs to have a will. Period. Even if you don’t have much to pass along, you’ll still save your family tons of time in probate (the legal process of sorting through your possessions after you die) by having a will in place. Making a will is a fairly simple process that will give you peace of mind knowing how your future will be handled.
There’s a catch you need to know about: Your will does not determine the outcome of certain assets, including your retirement accounts, annuities and life insurance. Each of those plans will give you the opportunity to name a beneficiary (the person who gets your possessions when you die) for the account.
A living trust is similar to a will except that you transfer your money, property, investment earnings and other items of value into a trust while you’re still alive. At that point, you don’t own whatever you’ve put into the trust—the trust owns it. You also appoint a trustee—someone who manages the trust and has to give approval before any big changes are made.
Now, setting up a trust can be expensive and add a layer of hassle to your life. Every time you want to sell something owned by the trust, you have to jump through a few extra hoops and have the trustee sign off.
But if you have a large estate, a trust might be a good idea. A trust adds a layer of legal protection for your estate, and when you die, your trust doesn’t have to go through probate. Also, a trust is private, while a will is public. No one except your beneficiaries will know what you’ve given to others.
Powers of Attorney
Every estate plan includes a power of attorney (POA): a document giving someone the legal authority to make financial and/or health care decisions on your behalf. This is especially important as you age, because no one—not even your child—can access your financial accounts without prior permission.
There are two main types you need to be aware of: a medical power of attorney and a financial power of attorney. You can appoint the same person to serve as your medical and financial POA, or you can select two different people.
A financial POA will help you manage your money, access your accounts, or act with legal authority to manage your financial affairs on your behalf.
A medical POA makes decisions about your medical care when you’re unable to make them yourself. For example, if you have an elderly parent with dementia, a POA is helpful for making decisions about their care, since they’re not able to process information completely.
A medical POA is similar to a living will, also called a health care directive. A living will explains your wishes for end-of-life medical care, such as whether or not to resuscitate you if you’re in a nonresponsive state. If you have a medical power of attorney, there’s no need to have a living will. You can simply combine the day-to-day health care decisions and end of life care in the medical POA.
An estate plan outlines what happens to your stuff if you die, but it doesn’t protect those assets in case of a legal proceeding. That’s why you need umbrella insurance. It’s extra liability that protects you from major claims and lawsuits. It acts like a shield over auto and homeowner’s insurance and kicks in when those policies have reached their limits.
6. Revisit and update your estate plan on a regular basis.
When you go through major life changes, your estate plan should too! Update your will when major events occur, including:
- Moving to another state
- Having kids
- Selling a business
Make it a habit of reviewing your estate plan about once a year, whether or not you’ve had any major life changes come up. This is a perfect opportunity to check back in with your lawyer and see if there have been any legal or tax changes that could impact your plan.
Create a Will in 20 Minutes or Less!
Estate planning doesn’t have to be complicated and take hours of your time. You can create a legally binding will and choose your powers of attorney online in just 20 minutes or less! Plan ahead, protect your family and find peace of mind by making your will today.