What is estate planning? Understand how it can protect your loved ones and your most important assets

If the thought of making a plan for your money in the immediate term seems daunting, estate planning may be low on your list of priorities. But experts say procrastination can cost you and your loved ones down the line.

There is no way to predict when we will go, but that difficult time can be easier for our friends and family by preparing a plan that tells them exactly how to handle any money or assets we have left.

What is estate planning?

Think of an estate plan as your final instructions on how to handle important decisions about your finances, health, and more.

“Estate planning is a collection of legal documents that detail your final wishes regarding your assets, health care decisions, and finances—where you create an estate plan and stick to it. that’s cutting edge,” says Jenny Xia Spradling, Co-CEO of FreeWill , an online platform that offers free estate planning tools. “It manages the assets you own, your future care, and the legacy you leave for the people and causes you care about. It’s important because it simplifies the probate process, which can be high and expensive for your loved ones, it helps you to allocate funds and guardians for minors and for pets, it helps to avoid conflicts between your loved ones and your assets, and it helps you leave an impact through charity.”

Your estate plan should leave clear instructions for the following:

  • Personal identification documents: Proof of identity documents, such as your license, passport, and Social Security card.
  • Last will and testament: It tells your family and loved ones how you want your wealth and assets to be distributed.
  • Revocable living trust: A legal document that gives someone you choose the authority to make decisions about money or property held in a trust.
  • Beneficiary names: This is the person or persons who will inherit your assets when you pass away. This can include any funds held in your life insurance policy, retirement accounts, brokerage accounts, etc.
  • Advance health care directive: Legal documents that provide clear instructions for your medical care if you do not make your own wishes known.
  • Financial power of attorney: This document appoints someone to manage your finances for you.
  • Works or titles: Your estate plan should include any deeds or titles for your properties and assets.
  • Funeral instructions and wishes: If you have specific wishes for your funeral that you would like your loved ones to follow, be sure to include detailed instructions in your estate plan.

Most Americans do not have a plan in place

A common misconception is that estate plans are for the super rich, but this is not true. Your loved ones need to know what to do with any assets or money you leave behind, regardless of size or value.

It is estimated that more than $80 trillion will be passed from today’s older generations to their children and other heirs in the next two decades, but most Americans do not have a clear plan for their assets.

A 2022 survey by Caring.com found that only 33% of Americans have a living will or trust, and one in three Americans without a will or living trust claim they don’t have enough assets to be left. And the outlook is even worse for people of color.

According to a 2022 Consumer Reports survey, 61% of white Americans and 67% of English-speaking Asians have no will. Looking at other groups, the survey found that 77% of Blacks and 82% of Hispanics do not have a will.

“If you don’t plan ahead, you run the risk of dying without a plan or condition plan in place—or you may scramble to do so after your physical and/or mental decline and may want to spend quality time with the people you love. All of this comes with the risk of not being clear while you’re alive about who makes health care and financial decisions for you when you’re incapacitated, what you want of your body after your death, and who receives your assets,” Spradling said. “If there is a family disagreement over who receives certain assets, it can lead to conflict in your estate. can be nasty and expensive, and you probably don’t want it.”

4 points to remember as you create your estate plan

As you work to create your estate plan, you’ll want to keep the following in mind to ensure the process goes smoothly and smoothly.

  1. Don’t be afraid to seek help from a professional if it makes sense for your situation. Depending on the size of your estate, the number of assets, or your family dynamic, you may find it helpful to work with a licensed estate planning attorney. “Anyone with a complex situation involving complex trusts, or children with special needs, should turn to an attorney,” Spradling said. Hiring a lawyer comes with additional costs, but it will also give you peace of mind that no stones will be left unturned and all your assets will be distributed properly.
  2. Take advantage of free resources online. If you expect your plan to be less complicated and perhaps you have a smaller estate, you can take advantage of free online planning websites that offer easy-to-follow templates for your estate planning documents.
  3. Make sure you distribute copies of your estate plan. Your attorney should have a copy of your estate plan, as well as any family members you wish to share it with who may be included in your estate plan such as your beneficiaries or the executor of your estate – although it is not necessary to share it with all your loved ones in advance.
  4. Update your plan as your circumstances or preferences change. Depending on when you created your estate plan, you can expect some of your circumstances to change. That’s why it’s important to update your estate plan from time to time. “One of the biggest mistakes in not updating an estate plan is that families themselves change. Many relationships don’t work out, and the most common issue is that an out-of-date that estate plan leads to a windfall for an estranged spouse,” Spradling said. “There may also be additional children born in a family that you don’t want to forget. Lastly, pets have shorter lifespans than people, so there are always changes that happen over time about who your pet is, how old they are and how much you should spend trusting your pet with. pets for their care.

The takeaway

For some, creating an estate plan can feel complicated and emotionally heavy, but taking the time to set clear guidelines now will make it easier on your loved ones later. It also protects your legacy and ensures a smooth transfer of wealth from one generation to the next.

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