People often assume that estate planning and wills are the same thing — essentially, that all you need to do is create your last will and testament to be done with your estate plan. But there is much more to an estate plan than creating a will.
Estate planning often elicits images of mansions and yachts, when in fact nearly everyone has an estate. Your estate is simply the assets you plan to leave behind, and estate planning spells out your intentions and goals for them in the event of your death or incapacitation. It also includes details for how you’d like your loved ones cared for and who can make crucial decisions about your estate on your behalf.
Your will can help spell out some of these details, but it is not the entirety of your estate plan. Here’s what you should know about estate planning and wills to make sure you have adequately planned for your loved ones’ futures.
What is a will?
A last will and testament is a legal document that covers certain details around your last wishes. It can outline how you would like your property divided after you die, whether it’s to family members, friends or even charity. That “property” includes all assets, whether that’s cash, investments, homes, cars and even artwork. Second, it can outline the care for any dependents, including who you choose to take custody of your children or care for elderly parents. A will must go through probate after your death in order to go into effect.
In addition to a will, you may also want to consider a trust. A trust has similar goals as a will when it comes to spelling out your wishes for your assets, but it is handled privately — which means it won’t go through probate court (and thus won’t become public record). You can also outline in a trust the parameters around the financial care of any dependents, such as when and how they can receive their inheritance. Many families set up a trust before death; you can appoint yourself as the initial trustee and manage the assets within it while you’re alive, and then designate a successor trustee upon your death.
Lastly, remember that these are living documents as long as you are. Designate a set time to revisit them annually to ensure they continue to reflect your intentions.
What is included in estate planning?
An estate plan would include these important elements.
A will and/or trust
In addition to outlining whom you are leaving your assets to, you want to make sure to name a guardian for your children in your will. In a trust, you can also designate someone (whether it’s their guardian or someone else you trust) to handle the finances for your children.
Most financial accounts you own, whether it’s your bank account, investment and retirement accounts, and any life insurance policies, will ask you to designate a beneficiary to receive the proceeds after you die. Many people don’t realize that these forms supersede what’s listed in your will. So make sure they’re updated to reflect your current wishes to ensure an error doesn’t prevent your assets from going to whom you want.
Durable powers of attorney
This paperwork designates who you want to act on your behalf to manage your financial and/or medical affairs should you become incapacitated. You may choose the same person for both, or specify different people for each task. Make sure to have a backup person designated in case your primary appointee is unable or unwilling to perform the functions.
Advance health care directive (AHCD)
A medical power of attorney and a living will make up your AHCD. The living will would state your medical wishes about resuscitation and life support if you are incapacitated due to injury or illness. It’s a key step to removing these grave decisions from your family’s shoulders during a stressful time.
Letter of intent
While not a legally binding document, this letter gives the executor of your estate personal insight into your mindset, from instructions for the type of funeral and burial you prefer, to final messages you have for your family about your values and wishes for their future.
Access to your digital assets
You live most of your life online these days, and your heirs and executor need to know how to access everything from your social media accounts and photo libraries to your email so they can address bills and other accounts that are currently settled online. Plus, you may have valuable memories stored in your digital assets that you want to pass onto loved ones.
So make a list of all your accounts and passwords and include a hard copy with your estate planning documents. Include to whom you are giving authority to access your accounts. Keep in mind this document should be updated as you update your online account information so that your executor will have the most recent information.