Few people wake up in the morning excited about making legally binding plans for what happens after they die. And yet, the sweet embrace of death is coming for us all, and the savviest among us will have plans in place for when it does.
Despite the fact that it involves a lot of legal paperwork, estate planning doesn’t, in fact, have to be dull or depressing. Instead, you could think of it as an opportunity to consider and plan for the kind of legacy you’d like to leave behind once you’ve shuffled off this mortal coil.
If you’re still skeptical that it’s worth the time and effort, keep reading. We’ll break down all the various components of an estate plan and discuss why each is a worthy endeavor.
An estate plan consists of several legal documents, which, together, dictate what happens when you die or become incapacitated to the point where you can no longer make such decisions for yourself.
There are several key components of estate planning, which we’ll break down for you now:
Key components of an estate plan
Will — Also known as a “last will and testament,” your will is a legal document that dictates what happens to your property after you die. This is the part of the estate plan where you get to say which family members get which of your assets. A will may also be used to outline who should care for minor children or other dependents (including pets) after you’ve gone the way of the dinosaur.
Trust — A trust is a legal arrangement whereby assets are held “in trust” by a third party before being distributed to beneficiaries once certain conditions are met. They differ from wills in a few notable ways:
Power of attorney — Carrying out a will or a trust can be more complicated than simply following the instructions you wrote down when creating your will. Decisions must often be made, and at this point you won’t be around to make them.
If your home needs to be sold, who decides what offer to accept?
And so, when you create an estate plan, you designate a power of attorney, which grants a specific entity the power to make legally binding decisions on your behalf once you’ve crossed over to the final frontier.
Living wills & health care proxies— Unfortunately, not everyone maintains the ability to have personal agency until their death. It’s possible that, due to any number of health complications, you may lose the capacity to make important decisions about your care while you’re still alive.
A living will specifies what type of care you would like to receive in specific situations where you’re unable to make the decisions for yourself. It’s like a will that only covers your own personal health care.
Some important questions to consider when creating a living will are as follows:
A health care proxy (also known as a medical power of attorney) names someone as having the power to make decisions about your medical care on your behalf. If a situation comes up that is not covered by your living will, your healthcare proxy will make the decision that they believe most aligns with the values and wishes expressed in your living will.
Beneficiary designations — If you have assets like life insurance policies or annuities, you likely designated beneficiaries when you created those accounts. It’s important to check to ensure the beneficiaries you designated individually within these assets match up with those you have listed in your last will and testament, otherwise legal trouble could arise.
Now that we’ve covered the basic components of an estate plan, let’s talk about all the reasons you should absolutely have one.
Ensure your wishes are honored
If you have specific assets you want to pass on to specific family members, creating an estate plan is the only way to ensure that those wishes are carried out.
But these wishes often go beyond mere financial affairs: you may have strong opinions about what happens to your body after you give up the ghost. Do you want to be cremated? Buried? Transformed into a memorial diamond? (Yep, that’s real.)
What sort of funeral you want to have is also dictated in your estate plan. Do you want people laughing or crying? Both? What sorts of stories do you want to be told? If any of this matters to you, you’ll want to make sure you create an estate plan.
Protect your loved ones
If you have dependents (or pets, even), you probably also have opinions about which relatives or friends you would want taking care of them in the event of your passing.
Plan for incapacity
The last thing you want your family members to have to do is make the impossible decision of what to do if you are still alive but unable to make choices for yourself. A complete estate plan removes this burden by specifying a care plan and designating a medical power of attorney who will make those decisions according to your wishes.
Avoid the probate process
If you die without creating an estate plan, who decides what happens to your assets? The probate court, that’s who. This is a messy legal process that involves legally proving your beneficiaries are related to you and why your property should pass to them.
If they’re already grieving over your death, the last thing anyone is going to want to do is suffer through the gauntlet that is this court process
You can create an estate plan on your own online, however meeting with an estate planning attorney is probably the best idea. This way, you ensure you’ve done everything correctly and can feel confident that your wishes will be carried out.
Having professional assistance also means they’ll take care of all the heavy lifting as far as legal estate planning documents go, which is some pretty tasty icing on the cake.
Before you meet with a lawyer to plan your estate, however, you should complete the following estate planning checklist to make sure you’re ready:
Inventory your assets
What do you own that will need to be distributed upon your death? This is everything from the contents of your bank accounts to any property you own, to the knick-knacks sitting atop your piano.
Keep in mind that, these days, people often have digital assets that are often forgotten during the estate planning process.
It’s also important to remember that you may acquire new assets before you die, especially if you’re making your estate plan while you’re still young. It’s important to keep your plan updated so there are no gaps in your directives when it comes time to follow your instructions.
Decide on your beneficiaries
Going into the meeting with your lawyer already having a good idea of who’s going to get what will save you a lot of time and, therefore, money when it comes to attorney’s fees.
Meet with an attorney
Now that you’ve got all your ducks lined up nicely, you can look for an attorney to walk you through the dense forest of legal paperwork that accompanies the process of officially planning your estate.
It’s a good idea to have a conversation with any potential attorney on the front end to make sure you work well together. It’s also a smart move to check ratings online just to make sure they haven’t ruined anyone else’s life (or death).
Before you skip off into the sunset of managing your post-mortem financial affairs, there are a few common pitfalls you’ll want to make sure you take steps to avoid.
Skipping estate planning altogether
If you get to the end of this article and say to yourself “estate plans are for suckers,” then (1) we’ve failed you, and (2) while you might not live to regret it, your family probably will.
The legal requirements for distributing personal possessions and assets of a person without a proper estate plan are a snake nest of headaches. That’s the absolute last thing you want your family to have to endure when they’re already processing the heartache of your passing.
Never updating your estate plan
Unlike the succulents you keep overwatering, an estate plan is not going to be most successful if left alone without your attention.
Your values and assets will change as you progress through life and experience major life events (like marriage or divorce). This is especially true for those who create their estate plans when they’re relatively young.
Estate planning should be something you do continuously throughout your life to ensure that your plans will accurately reflect your most up-to-date values and desires.
Neglecting to account for incapacity
A last will and testament is all well and good, but it doesn’t achieve the purpose of a complete estate plan. You want to be sure you have instructions in place for anything that might happen to you, including those things that could result in your incapacitation rather than death.
Misaligned ownership and beneficiary designations
We mentioned this before, but legal stickiness ensues when the designations made on individual assets like life insurance policies or annuities don’t match those in your will. Before you meet with your estate planner, you’ll want to check all of your assets that allow for beneficiary designation so you can make sure that whatever you say in your will is aligned.
What are the five components of estate planning?
Wills and trusts, durable power of attorney, health care power of attorney, Living wills, and beneficiary designations are the five main components of estate planning.
How does an estate plan differ from a will?
A will is only one part of a valid estate plan. A will determines how your financial assets and other personal possessions are distributed amongst your surviving spouse and other family members when you die.
A well-planned estate, on the other hand, also accounts for your wishes regarding your medical care while alive but incapacitated, as well as the power of attorney for executing your will.
What is the main goal of estate planning?
Not only do you want to ensure that your final wishes are taken into account after you’ve left this world behind, but you also want to prevent those you love from having to traverse the mucky swamp of federal and state laws that govern what happens to your money and property if you haven’t left explicit instructions beforehand.