The Essentials of an Estate Plan – and Why You Need One

When people think about financial planning, they often overlook one critical piece, estate planning. Because August is “Make a Will Month,” we’re calling attention to this essential part of your financial plan.

The primary purpose of an estate plan

An estate plan establishes who you’d like to receive your assets when you die. If no planning is done, the state you live in will determine who receives your assets.

In other words, estate planning is for those you love. If you leave unanswered questions about how to settle your affairs, your loved ones may not benefit from your life’s work. That’s why answering questions now—and formalizing those answers in an estate plan—is a step that shouldn’t wait.

Additionally, your estate planning documents can help accomplish many other objectives including: 

• Naming guardians for minor children
• Care for children and those with special needs 
• Establishing a power of attorney (POA) to help handle health and financial needs while living
• Minimizing state and federal estate taxes
• Accounting for separate property and inheritance
• Protecting assets from spenddown or to provide care
• Charitable goals
  

Primary tools used in estate planning

There are many ways to set up your estate plan. No single way is the right way for everyone.  A few of the tools used to develop and execute an estate plan include:

• Registration and Beneficiary Designations – The registration of an account, or how an account or asset is titled or owned, along with the beneficiary designations, takes precedence over any instructions in a will or trust regarding the distribution of that particular asset. It’s crucial to keep these registrations and beneficiary designations coordinated and up to date to ensure they align with your wishes.
• Will or Trust – If the registration or beneficiary designation of an asset doesn’t specify a recipient, a will or trust serves as the next step to determine who inherits the asset. This applies to assets owned solely by an individual without designated beneficiaries.
• Power of Attorney (POA) – POAs are used for both financial and healthcare decisions while you are living. In a POA, one or more people are given authority to act on your behalf for specified activities such as paying bills, selling a house, deciding on your care plan. 
• Advanced Healthcare Directive – This document will inform your POA and doctors of your preferences when it comes to receiving lifesaving care.   

Overall, aim to make your estate plan specific while also keeping it straightforward and simple. Talk to your financial planner and estate planning attorney to decide what aspects of an estate plan are needed for you.