Your Guide to Estate Planning 

Believe it or not, having just a will might not be enough. Estate planning might sound like only rich people need to worry about, but that's not the case. Whether you have a little or a lot, planning what happens to your things after you're gone is important for everyone. 

It's all about following your wishes and keeping things as simple as possible for your loved ones during tough times. Let's discuss how you can start this important process step by step.

Estate Planning Components

Your estate comprises everything you own and all your current debts. Some examples include bank accounts, cars, real estate, investments, life insurance, and more.  

A common estate plan includes the following components:

• Wills are foundational documents in estate planning that specify how to distribute your assets after passing. They also appoint guardians for minor children, express your final wishes, and designate executors to manage the estate settlement process. Without a will, state laws take over the distribution of your assets. 

• Trusts, on the other hand, offer a different level of control and flexibility. Unlike wills, which become effective only after your death, trusts can be operational during your lifetime. Trusts are especially valuable for those seeking to manage and protect their assets more privately and efficiently, avoiding the public and sometimes lengthy probate process. There are various types of trusts for dealing with different situations —such as reducing estate taxes, protection from creditors, or providing for a loved one with special needs. Deciding between a will and a trust or whether to use both depends on your financial situation, goals, and concerns.

• Powers of Attorney are crucial for managing your affairs should you become incapacitated. Appoint someone trustworthy to make financial decisions, pay your bills, and manage your investments, even if you cannot do so yourself.

• Healthcare Directives articulate your preferences for medical treatment if you cannot communicate. They guide your healthcare providers and loved ones in making critical medical decisions, aligning with your values and wishes regarding end-of-life care.

Incorporating these elements into your estate plan ensures a comprehensive approach to asset protection, healthcare decisions, and legacy planning. Wills and trusts are the foundation, offering distinct asset distribution and management benefits. In contrast, powers of attorney and healthcare directives safeguard your personal and healthcare decisions. 

Determine your Estate Planning Goals

Ask yourself, what do you want your estate plan to accomplish? Create focused goals that align with your wishes.

Typical estate planning goals encompass:

• Secure ongoing financial stability for your loved ones.

• Designate individuals who will receive your estate assets.

• Appoint caretakers for minor dependents and establish a financial strategy for their welfare.

• Outline the future administration of your business affairs.

• Allocate assets to charitable organizations upon your passing.

• Stipulate desired funeral arrangements, eldercare, or healthcare directives.

• Express your wishes in the event of a medical crisis or inability to make decisions.

Inventory your assets and debt

Calculate the value of your assets to understand how much you can leave for your loved ones.

Complete the following checklist:

• Create your debt list: Before being passed on to loved ones, your assets are used to pay off any outstanding debt. Some types of debt include credit card balances, student loans, car loans, mortgages, etc. 

• Create your asset list: In estate planning, assets, both tangible and intangible, can be distributed to beneficiaries like family, friends, groups, and charities after your passing. Compile a list of tangible assets like land, real estate, vehicles, personal valuables, and collectibles, along with intangible assets such as bonds, stocks, retirement plans, and life insurance.

• Calculate your assets' value and subtract your debt: Calculate your net worth by subtracting your total debt from the full value of your assets. That figure represents the amount available for distribution among your beneficiaries in your Will. Remember that this figure may fluctuate due to payments, asset sales, or new debts.

Last Will

A Last Will and Testament is a crucial document in your estate plan. It grants you control over the distribution of your assets upon your passing, appoints guardians for children and provisions for pets, and allocates assets to beneficiaries.

Without a Last Will, the state may appoint an administrator, potentially overlooking your family circumstances. Choosing the right executor is vital, as they are responsible for carrying out your wishes, managing debt repayment, tax filings, and other legal matters. Your executor should be trustworthy and capable of handling the responsibilities involved.

A Living Trust and Pour-Over Will may be more appropriate if you have significant assets. 

Power of Attorney

The Power of Attorney legal document authorizes one or more individuals (i.e., attorney-in-fact) to make financial and property decisions on your behalf, especially in cases of illness or incapacity. 

It enables the attorney-in-fact to handle various matters, such as banking, real estate transactions, and signing checks – all based on your specified instructions and best interests. An attorney-in-fact's authority ceases upon your passing. 

A Power of Attorney is beneficial when you anticipate extended absences, have health concerns affecting decision-making abilities, own a business, or wish to establish clear financial and property management guidelines in the event of incapacity. 

Health Care Directive

A Healthcare Directive comprises a Living Will and a Medical Power of Attorney.  

The Living Will enables you to pre-plan medical treatment, ensuring your healthcare preferences are known and respected if you become incapacitated.

Meanwhile, the Medical Power of Attorney appoints someone to make medical decisions on your behalf, utilizing your Living Will as guidance when you cannot consent to treatment.

End-of-Life Plan

Consider the arrangements for your body after death by creating an End-of-Life Plan, which complements your Last Will in addressing funeral and remains preferences. 

This plan includes funeral arrangements, disposition preferences (burial, cremation, etc.), executor appointment, notice publication, organ donation wishes, and funeral payment instructions.

Remember that organ donation requires separate registration through online platforms or local Department of Motor Vehicles (DMV) registration, as specified in your End-of-Life Plan.

Research your state's estate tax laws

Understanding estate taxes is crucial, as they apply to assets transferred to beneficiaries upon your death. 

In the United States, federal estate taxes apply to estates exceeding $13.61 million for individuals (as of 2024), while some states impose their own estate tax laws with varying exclusion limits. 

Assets passing directly to a spouse are exempt from federal estate taxes but may be taxed later. Executors of taxable estates must file Form 706 with the IRS within nine months of death.

Review and update your Estate Plan 

As your circumstances evolve over time, so should your estate planning goals. Regularly updating your plan ensures its relevance and effectiveness in meeting current needs. 

Major life events such as marriage, divorce, the death of a representative or beneficiary, significant asset purchases, changes in debt, or family expansions through birth or adoption should prompt updates to your plan. 

It's important to inform your representatives and attorney-in-fact of any changes to your estate plan to ensure its accuracy and alignment with your wishes.