Estate planning is the preparation and management of a person’s estate while they’re still living. It helps to plan in advance of the person’s death or incapacitation and stipulates the disposal of assets to beneficiaries. Usually this is done with the assistance of an estate law attorney. An estate plan can be completed along with a will, revocable trust, or irrevocable trust.
There are a number of reasons an individual would need an estate plan, and you don’t have to have a large estate to warrant one.
Many people choose to begin estate planning when they become parents. This often starts with a simple will but can lead into a more comprehensive plan. This can be especially useful if your children are minors when they inherit your estate as this will ensure the assets stay with them and are protected, usually in a trust, until they come of age.
If you don’t have an estate plan with a living trust when you die, your assets go into probate which can be a lengthy and costly process with the courts. A good estate plan can usually avoid probate completely.
Another feature of probate is that it’s public. This means that all the details of your assets and wealth will be accessible to anyone who inquires. If your assets are taken care of through an estate plan, this information is kept private.
Many people choose to name charities or nonprofits to receive some of their assets after they die. These are usually organizations that hold a personal meaning for the deceased and an estate plan can ensure your money goes where you want it to.
Executing a will can be a messy business, especially if there are several beneficiaries (or people who think they should be beneficiaries) all vying for their share. Without a clear estate plan this can result in family discord and additional legal expenses.
The complexity of your estate will inform the specifics of your plan, but in general you’ll want to follow these steps. Technically, you can do this on your own or with the help of an online program, but it’s highly recommended to enlist the help of a qualified estate attorney.
Write a will that lays out the basics of what parts of your estate will go to which beneficiaries and stipulates who will become the guardian of your children. Obtain life insurance if you don’t already have it.
Consider implementing a living trust to ensure your beneficiaries stay out of probate and decide power of attorney. This will give a specified person authority over your finances if you become incapaciated. Finally, write out your medical directives. Like a power of attorney, this person(s) you choose for this role will be able to make healthcare decisions for you.
These could include:
Most estates won’t be subject to federal estate taxes, but you may have state estate taxes you’ll need to account for. In 2021 estates of up to $11.7 million are exempt from federal estate taxes.
The average cost of a funeral is between $8,000 and $10,000, and this doesn’t cover additional end-of-life expenses like palliative care.
It will cost you to amend your estate plan, but it’s essential you make updates as your circumstances or beneficiaries change.
The cost of estate planning varies depending on complexity. You can often write a simple will for a few hundred dollars, but if you work with an attorney you’ll be paying around $300/hour for their time and your total cost will be in the thousands. In addition to the original cost, you’ll also have to pay any time you want to revise your plan.
There are some free planning programs offered by certain states, but these should only be used if you have a very simple estate.
Everyone should have some sort of legal document prepared that outlines the basic steps they’d like to see taken upon their death. This can be either a will or an estate plan.
If you are concerned about how your assets will be divided and dispersed upon your death, or how your family will fare after you’re gone, you should consider an estate plan regardless of the size of your estate.
Everyone should have a will, and if you have no major property holdings, investment or business assets, a well-written will could be all you need to ensure your beneficiaries are cared for. A will, however, only covers your directives after your death whereas an estate plan can include documents that manage your assets while you’re still alive.