It’s easy to devote our attention to today’s financial issues—like paying bills and keeping up with our day-to-day responsibilities—but what about the future? Saving for long-term financial goals is certainly important, and the same can be said for estate planning. It’s essentially a plan for how your assets will be distributed after your death (among other things). It may not be the most fun topic in the world, but that doesn’t make it any less valuable. After you pass away, the last thing you want is for your loved ones to be left scrambling to figure things out.
Let’s get into what estate planning is, how it works, and why it matters.
What’s included in an estate plan?
An estate plan basically outlines your wishes for after you’re gone. The idea is to provide a roadmap for your surviving family members. A will is usually a core piece of the puzzle. According to Opal Wealth Advisors, it’s a legal document that clarifies important information, like who will inherit your possessions and step in to care for any minor children.
It often begins with taking inventory of all your assets. This includes property, personal and business assets and more. Beyond that, estate planning usually includes different financial accounts, such as:
- Bank accounts (checking, savings, etc.)
- Investment accounts, including retirement accounts
- Life insurance policies
In your will, you can provide instructions for these things. Going back to minor children, you’ll also want to appoint a guardian you trust who will care for your children if it ever comes down to it. You might want to consider talking with this person now to see how they’d feel about it.
Other steps you can take now to plan for the future
Beyond creating a will, you can also think about naming the beneficiaries on your accounts and life insurance policy. Speaking of life insurance, the death benefit it leaves behind could provide your surviving family members with much-needed financial support. There are two main types of life insurance, according to Northwestern Mutual:
- Term life insurance: You pay a premium for a set number of years. If you pass away during this time, your beneficiary will receive the death benefit outlined in your policy.
- Whole life insurance: This tends to cost a little more, but it’s a life insurance policy that never expires. It also accumulates a cash value that you can draw on if you need to. Tapping these funds will reduce your death benefit, but it’s there all the same.
Another factor of estate planning, according to Nolo, is appointing folks to act as durable powers of attorney. If something happens and you become incapacitated, they can oversee your medical care and manage your finances in a way that supports your wishes.
What happens if you die without a will?
Putting estate planning on the back burner could create a series of headaches for your loved ones. If you die without a will, the court will assume the responsibility of distributing your property via a process called probate, according to LegalZoom. It can be a lengthy and costly affair, and the court may make decisions that go against your actual wishes. According to Nolo, attorney and court fees in some states could equal up to 5% of an estate’s value. Having your affairs in order before you pass can help your family avoid probate altogether if what you want is clearly laid out in a legally binding way.
How do I make an estate plan?
One option is to connect with an attorney who specializes in estate planning. They should be able to walk you through the process and advise you in terms of what actions to take. There are also many online services and digital platforms that allow you to draft your own legally binding will. Just be sure to work with a well-established company that adheres to the unique estate laws in your state. And remember that you’re more likely to get personalized guidance when working with an experienced attorney.
Estate planning is a core part of financial wellness, but it isn’t a one-size-fits-all thing. Instead, it should be tailored to your needs, desires, and personal financial situation. A main takeaway is that addressing these issues now can provide peace of mind because you’re planning ahead for your loved ones. It can also benefit you today. As Northwestern Mutual explains, a whole life insurance policy, for example, can generate an accumulated cash value as premiums are paid. This can come in handy if you’re faced with a financial emergency down the line.