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Estate planning 101

 Having a smart estate plan can be essential for everyone鈥攔egardless of assets, age or income. Along with helping ensure your assets are distributed according to your wishes, estate planning can also help minimize taxes, protect your beneficiaries and allow you to appoint trusted individuals to make decisions on your behalf if you鈥檙e unable to do so in the future.

What is an estate plan?

You might think estate planning is something you can put off until your later years, or that it's just for the super wealthy, or both. But setting up a clear path for what happens to your property and your family after your passing is an important part of financial planning and can help make life for your heirs much easier in a time of stress and grief.

An estate plan is a set of legal documents and arrangements that outline how your assets and affairs should be managed and distributed during your lifetime and following your death. No matter your life stage, having an estate plan can help provide peace of mind that your wishes can be honored, your loved ones will be cared for, and potential legal and financial complications can be minimized.

Key components of an estate plan

An estate plan often includes several pieces that can work together to help carry out your wishes and provide guidance for the people you care about.

Will

This basic legal document outlines who will get what upon your death鈥攔ather than having state laws determine how your assets are distributed, which can be a headache for your heirs and could cost them more money in the long run.

A will is especially important if you are a single parent or have young children. Without a designated guardian, a court may need to determine who will care for your children in the future. Plus, a judge may decide on a guardian you'd never have chosen yourself. By having a will in place that states who you would like to serve as your children's guardian in case something happens to you, you can help ensure your wishes are considered when determining who will care for your children. It鈥檚 important to note that the guardian must agree to this arrangement, so think about having a conversation with them before finalizing this part of your will.

Laws governing wills can vary state-to-state, so consulting with locally licensed attorneys can help ensure wishes are represented accurately in any will.

Trust

A trust is a legal arrangement that can provide more control over how and when your assets are distributed. Here are a few key things to keep in mind about trusts:

• If you hold properties in more than one state, your estate could be subject to probate in each state. However, if you establish a trust and transfer ownership of the properties to the trust, this may eliminate that requirement.
• A trust can be set up for minor children. It can specify how the assets they inherit will be used to support them, who will make those decisions and when the children can take control of those assets, if ever.
• Trusts can be used to provide for children with special needs while helping preserve their eligibility for government benefits.

Powers of attorney and incapacity planning

While a will can dictate what happens after you pass away, what if something happens to you while you鈥檙e alive and you can't make decisions for yourself? Who will be in charge? Who will make sure that your bills are paid and that medical decisions are made with your best interests and wishes in mind? Incapacity planning can help address these questions by putting a plan in place for someone you trust to step in and handle matters if you are unable to do so yourself.

Assigning a power of attorney (POA) allows you to appoint someone to make decisions and take actions on your behalf. There are different types and scopes of POAs, including those related to finances and healthcare. A financial POA can give someone the authority to manage financial matters, such as paying bills or handling accounts, while a healthcare POA can allow someone to make medical decisions on your behalf if you are unable to make them yourself.

Keep in mind that those roles may be held by different people and you can set limits on when and how much control someone has. Incapacity planning can also involve documenting your healthcare wishes and making sure the people you have chosen know where to find important information and documents. Taking these steps in advance can help reduce uncertainty and make it easier for others to follow your wishes if the need arises.

Laws governing powers of attorney vary state-to-state and can be very restrictive. Individuals should consult with locally licensed attorneys to help ensure their power of attorney will be valid and convey the anticipated powers in their local jurisdiction.

Managing estate planning documents and assets

Keeping your estate planning documents safe and in an accessible location can help make it easier for the executor of your estate and your family members to find this information when needed. Some tips for storing estate planning documents include:

• Store original hard copies in a fireproof safe
• Upload a digital copy to a secure cloud storage or external hard drive
• Inform your executor and family members about the location of documents and how to access them
• Keep copies with your attorney, financial professional or estate planner

Adding digital assets to your estate plan

An estate plan should account for more than physical property and financial accounts. Many aspects of our financial and personal lives are managed online, so it can be a good idea to make digital assets a part of organizing your estate. Digital assets may include:

• Financial assets such as bank and savings accounts, investment and brokerage accounts, retirement plans and digital payment services
• Password managers and other tools used to store login credentials
• Digital files and documents, including tax records and insurance documents
• Photos and videos
• Websites, social media and other online accounts

Consider making a list of the accounts and digital assets you have, along with information about how trusted individuals can locate and access them if needed. An estate planning attorney can help determine which digital assets may need to be outlined in your estate plan.

When should you review your estate plan?

Like other parts of your financial plan, periodically reviewing your estate planning documents can help ensure they are up to date and still align with your wishes. Review your estate plan every three to five years, as well as following major life or financial changes. These may include:

• Marriage or divorce
• The birth or adoption of a child
• The death of a spouse, executor or beneficiary
• A significant change in your assets or financial situation
• Major changes to tax or estate planning laws

Following these or other significant changes, it can be helpful to meet with your attorney or a financial professional to make any revisions to your beneficiaries, power of attorney or estate planning documents.

Regardless of your age or financial situation, taking time to create a well-thought-out estate plan can help you protect your legacy, care for your loved ones and plan for the unknown. Laying out your wishes now can help promote peace of mind for you and your family for years to come.

Frequently asked questions about estate planning

What is estate planning?

Estate planning is the process of documenting your wishes in writing for how your assets, finances and other personal matters should be handled during your lifetime and after your death.

What documents are included in an estate plan?

An estate plan may include documents such as a will, trust, power of attorney and health care directive. The documents you need typically depend on your circumstances, wishes and state laws.

Do I need an estate plan if I don't have significant assets?

Yes. Estate planning isn鈥檛 just about the assets you own. It can help ensure your wishes are known and designate who can make financial and health decisions on your behalf if you鈥檙e unable to do so.

What is the difference between a will and a trust?

A will outlines how you want your assets distributed after your death and can name guardians for minor children. A trust can hold and manage assets during your lifetime and after your death, according to the instructions you set.

How often should I review my estate plan?

It鈥檚 a good idea to review your estate plan every three to five years and following major life or financial changes, like marriage or divorce, birth of a child, death of a spouse or a change in your assets or financial situation.

Should digital assets be included in an estate plan?

Digital assets like online financial accounts, digital files, photos and other personal digital property can be important to include in your estate plan. You may also want to provide instructions on how trusted people can locate and access important information.

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