The decisions involved with estate planning may be deeply personal, but they have an impact that extends far beyond you as an individual.
The level of detail you put into these decisions can go a long way in helping your loved ones during a difficult time. That’s why it’s never too early to start planning — and having conversations with your family.
“The sooner you can start talking to family members about your estate plan, the more likely they’ll be [willing] to accept your plan and get on the same page,” says Ivory Ruud, senior vice president and regional trust manager for U.S. Bank Wealth Management. And while the specifics of your estate plan will be unique to your situation, there are a few key steps everyone can take to make the process go smoothly.
1. Start with the basics
An estate plan generally involves four basic elements:
• A will or trust
• Life insurance
• A healthcare directive
• Power of attorney
A will or trust is the primary instrument you’ll need to get started. “You can have one or the other, or even both,” Ruud explains. Without a will or a trust, your property and assets might not be distributed according to your wishes. “When you have a will, you get to explicitly list who should get what in a way that might be different from what the default is under your state’s law,” Ruud explains, “and it’s for assets you’d like kept in your own name during your lifetime.”
Creating a trust provides added flexibility with how to allocate your assets. You set aside funds, property or other assets and outline your wishes regarding their distribution. For example, you can create age provisions in your trust so that beneficiaries receive assets only when they reach a certain age. Trusts also allow you to avoid the lengthy and public probate process, which wills are subject to.
2. When to begin planning
When it comes to creating the different parts of your plan, “it’s never too early to start,” Ruud says, “but there are different times when different pieces become more important.”
Even young adults can think about at least two of the four elements early on: a healthcare directive and selecting the power of attorney. “Your healthcare directive states who you’d want to make decisions for you in a medical setting if you were unable to make them yourself,” Ruud says. “And when it comes to power of attorney, even if you don’t have much wealth at a young age, appointing someone to manage your assets for you or pay taxes if you become unable to do so is also a smart decision.”
When you reach the age when you start acquiring assets or have a growing family, that’s when a will and/or a trust could come into play. Ruud notes that milestones, such as buying a home or having a child, often make you start thinking about the bigger picture.
3. Consider your beneficiaries
When it comes to choosing beneficiaries for your assets, different families have different values or beliefs that may influence these decisions. “For some people, children and spouses are the first beneficiaries they think of,” Ruud says. “But for others, charitable causes or organizations might be top of mind.”
It may also be difficult to designate beneficiaries among multiple children when there’s an unspoken expectation that everyone should get equal treatment. “There are often deep-seated feelings that things must be equal, and there can be hurt feelings if they’re not,” Ruud says, “but it may not always make sense to have everything split completely equally.”
For example, if you run a family business, you might choose to leave it to the child who’s taken an interest in carrying on the family’s legacy, or a child who may need more financial help than others. Conversations with family members and an estate planning professional can help you ease tensions and make decisions that are in everyone’s best interest.
4. Be open and honest
At the end of the day, estate planning can be emotional. It brings up topics that many of us would rather not talk about at all. But the sooner you start an open dialogue, the sooner you can address underlying concerns that loved ones might have.
“Everyone in the family might have a slightly different concern about the estate,” Ruud explains. “For example, some people are more oriented toward the sentimental value of objects than others.” Ask your children or grandchildren if there are certain items that have sentimental value to them and call them out in your trust or will. You may also be able to have discussions around equality and fairness and explain how you’ve made certain decisions regarding who will get which assets.
Bring everyone on board early on in your planning to make sure they’re on the same page. By having some difficult conversations and doing a bit of work now, you can create a thoughtfully detailed estate plan that can ensure your assets are managed according to your wishes.