Estate Planning Basics
Protecting Your Legacy
Introduction
Estate planning isn't just for the wealthy. Everyone needs basic estate documents to ensure their wishes are followed and their loved ones are protected. Without proper planning, your assets may not go where you want, your family may face unnecessary complications, and courts may make decisions you wouldn't choose.
Why Estate Planning Matters
Without Estate Planning:
- State law determines who gets your assets (intestate succession)
- Courts may appoint guardians for your children
- Your family may face lengthy and expensive probate
- No one can make medical or financial decisions if you're incapacitated
- Assets may be frozen during the process
With Estate Planning:
- You decide who gets what
- You choose guardians for minor children
- You can minimize taxes and avoid probate
- Trusted people can act on your behalf if needed
- The transition is smoother for your family
Essential Documents
1. Will
The foundational estate planning document.
What a will does:
- Names who receives your assets
- Nominates guardians for minor children
- Names an executor to manage your estate
- Can include specific bequests (particular items to particular people)
What a will doesn't do:
- Control assets with named beneficiaries (retirement accounts, life insurance)
- Avoid probate
- Help if you're incapacitated (you're not dead yet)
Everyone with assets or children should have a will.
2. Beneficiary Designations
Many assets pass directly to named beneficiaries, bypassing your will:
- Retirement accounts (401k, IRA)
- Life insurance policies
- Payable-on-death bank accounts
- Transfer-on-death investment accounts
Keep these updated! They override your will. A common mistake: forgetting to update beneficiaries after marriage, divorce, or children.
3. Durable Power of Attorney
Names someone to handle your financial affairs if you can't.
Powers may include:
- Paying bills
- Managing investments
- Filing taxes
- Making financial decisions
Without this, your family may need court proceedings to manage your finances if you're incapacitated.
4. Healthcare Power of Attorney (Healthcare Proxy)
Names someone to make medical decisions if you can't.
This person can:
- Authorize or refuse treatment
- Choose doctors and facilities
- Access medical records
- Make end-of-life decisions
5. Living Will (Advance Directive)
Documents your wishes for end-of-life medical care:
- Life support preferences
- Resuscitation wishes
- Pain management preferences
- Organ donation preferences
This guides your healthcare proxy and removes the burden of guessing your wishes.
Trusts: Beyond the Basics
Trusts are legal arrangements where one party holds assets for another's benefit.
Revocable Living Trust:
You create a trust, transfer assets to it, and remain in control during your lifetime.
Benefits:
- Avoids probate (assets pass directly to beneficiaries)
- Privacy (unlike wills, trusts aren't public record)
- Continuity if incapacitated (successor trustee takes over)
Drawbacks:
- More complex and expensive to create than a will
- Requires transferring assets into the trust
- Not necessary for everyone
Who Might Benefit:
- Those with complex estates
- Privacy concerns
- Property in multiple states
- Desire to avoid probate
Irrevocable Trusts:
Once created, you give up control. Used for:
- Estate tax planning
- Asset protection
- Medicaid planning
- Special needs beneficiaries
These are more complex and typically require professional guidance.
Probate: What It Is
Probate is the court process of validating a will and distributing assets.
What Happens:
- Will is submitted to court
- Executor is appointed
- Assets are identified and valued
- Debts are paid
- Remaining assets are distributed
Probate Concerns:
- Can take months to years
- Costs 3-7% of estate value
- Public record
- May delay asset access for beneficiaries
Avoiding Probate:
- Beneficiary designations
- Joint ownership with right of survivorship
- Payable/transfer-on-death designations
- Revocable trusts
Special Considerations
For Parents:
- Naming guardians is crucial—who will raise your children?
- Consider setting up trusts for minor children (they can't inherit directly)
- Name backup guardians in case first choice can't serve
For Blended Families:
- Be explicit about what goes to whom
- Consider trusts to protect children from prior relationships
- Communicate with family about your wishes
For Business Owners:
- Succession planning is essential
- Consider buy-sell agreements
- Document who will run or sell the business
Getting Started
DIY Options:
Simple estates can use online services:
- LegalZoom
- Trust & Will
- Nolo
Best for: Simple situations, young and healthy, small estates
Attorney Options:
Consider an estate planning attorney for:
- Complex family situations
- Significant assets
- Business ownership
- Tax planning needs
- Blended families
Cost: Basic documents may run $500-2,000; complex estates more.
Regular Review:
Update estate documents when:
- Marriage or divorce
- Birth or death of beneficiaries
- Major asset changes
- Moving to a new state
- Every 3-5 years regardless
Key Takeaways
- Estate planning isn't just for the wealthy—everyone needs basic documents
- A will names who gets your assets and guardians for children
- Beneficiary designations on retirement accounts and insurance override your will
- Power of attorney documents let trusted people act for you if incapacitated
- Trusts can avoid probate but aren't necessary for everyone
- Update documents after major life events and review every 3-5 years
Summary
Estate planning ensures your wishes are followed and your loved ones are protected. Essential documents include a will (names heirs and guardians), beneficiary designations (keep updated—they override wills), durable power of attorney (financial decisions), healthcare power of attorney (medical decisions), and living will (end-of-life preferences). Trusts can avoid probate but add complexity. Simple estates may use online services; complex situations warrant an attorney. Review and update documents after major life events or every 3-5 years.