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Estate Planning Essentials Everyone Should Consider

A couple meeting with a financial advisor to create an estate plan for their family.

Estate planning is not a set-and-forget endeavor. It requires regular updates and a keen understanding of the changing legal requirements. An up-to-date will, for example, can prevent familial discord, while the strategic use of trusts can offer tax advantages and protect your estate for future generations. Moreover, healthcare power of attorney and guardianship designations can help maintain personal autonomy and ensure that dependents are cared for according to your wishes. State-specific laws add another layer of complexity, influencing everything from asset classification to tax implications. If you want to avoid going about creating an estate plan on your own, consider working with a financial advisor.

Importance of Estate Planning

Estate planning is an essential component of financial management that often does not receive the attention it deserves. Without a clear estate plan in place, a family dealing with the unexpected loss of a loved one could face confusion and potential conflict over the distribution of assets.

To facilitate effective estate planning, several tools are available that can help make it easier for you to protect your assets and save your beneficiaries time and money. The five tools below are integral components of a robust estate plan.

Have an Updated Will

Preparing a will can evoke a mix of emotions, as it involves confronting your mortality and making decisions that will have a lasting impact. Creating a will, however, is a cornerstone of sound estate planning. This estate document can outline the distribution of your assets, appoint guardians for minor children, name an executor to manage the estate and potentially minimize conflicts among your beneficiaries.

You should note that creating a will is a first important step, but you will still need to keep it updated to help to ensure that it reflects changes in your personal circumstances, asset ownership and legal requirements.

Additionally, a will will not cover assets with designated beneficiaries, jointly owned property with rights of survivorship, assets held in trusts, or certain types of non-probate assets. Therefore, you will need to take other estate planning steps to address these components comprehensively.

Create Trusts for Your Beneficiaries

Senior clients discussing different estate planning strategies with their financial advisor.

Unlike a will, creating a trust can help you manage and distribute assets during your lifetime and after your death. This estate tool can allow you to plan for incapacity, and help you avoid probate.

There are many types of trusts, each serving specific purposes. Revocable trusts, also known as living trusts, can offer you flexibility as you can amend or dissolve it during your lifetime, but become irrevocable upon death. In contrast, irrevocable trusts are permanent and cannot be easily modified once established. This can help protect your estate from creditors and offer significant tax benefits.

Designate Beneficiaries

By naming beneficiaries on life insurance policies, retirement accounts and other financial vehicles, you can take another step to protect assets from a potentially lengthy and expensive probate process after your passing.

One common mistake: Many people believe that a will overrides all other directives for asset distribution, which is not the case when beneficiary designations are in place.

Therefore, to avoid conflicts, make sure you update beneficiary designations after significant life events.

Healthcare Power of Attorney

If you find yourself in a situation where you are unable to communicate your medical preferences due to an unforeseen illness or accident, a healthcare power of attorney could help ensure that your healthcare choices are respected and implemented when you’re not able to express them yourself.

To legally establish a healthcare power of attorney, you must take specific steps that comply with state law. These statutes dictate the formalities of creating this legal document—including the necessity for the principal’s signature and the presence of witnesses or notarization. The details of these requirements, like who can serve as a witness or the nature of the agent’s relationship with the principal, can vary significantly from one jurisdiction to another.

Guardianship Designations

Guardianship designations can serve to safeguard that minor children or incapacitated adults are cared for according to your wishes. The absence of such designations can lead to state intervention, where a court-appointed guardian may be selected without consideration for your preferences. This could result in less than optimal care and may not align with your family’s values or the best interests of your child.

Bottom Line

A senior couple meeting with a financial advisor who specializes in estate planning.

Having a robust estate plan can help you ensure that assets are managed and distributed according to your wishes, minimize family disputes, provide for the care of loved ones and help reduce tax liabilities. Luckily, there are many estate planning tools available, which collectively could help preserve your legacy and protect your family’s financial future.

Tips for Estate Planning

  • A financial advisor with estate planning experience can help you create an estate plan that is tailored for your specific needs. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • If you’re trying to create your own plan, make sure you understand the potential dangers of DIY estate planning.

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