The decisions involved with estate planning are deeply personal, and 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 difficult times. That’s why it’s never too early to start planning — and having conversations with your family.
As daunting as it may seem, the sooner you start a conversation with your family around estate planning, the easier that conversation gets over time. You gain valuable insight that helps inform your estate plan. These family discussions can also assist you in identifying and communicating concerns, needs, and legacy opportunities.
While the specifics of your estate plan is unique to your situation, there are a few key steps everyone can take to make the estate planning process – and accompanying conversations – go smoothly.
The sooner you start a conversation with your family around estate planning, the easier that conversation gets over time.
1. Answer a few important questions
Planning begins with knowing the answers to some important questions.
In the event of death:
- Who would I want to receive my assets?
- How would I want them to receive the assets, outright or in a protected trust?
- Who would I trust to handle assets in my estate until they can be distributed to my heirs?
- If there are minor children, who would I want and trust to be their guardians?
In the event of mental incapacity:
- Who would I trust to manage my assets and financial affairs?
- If a business is involved, do I have a plan of business succession and/or management succession?
In the event of medical incapacity:
- Who would I want to make health care decisions on my behalf?
- How do I feel about end-of-life decisions?
2. Start with basic estate planning documents
An estate plan generally involves four basic instruments:
- A will and/or trust
- A healthcare directive
- Financial and healthcare powers of attorney
- Life insurance
In most simple estate plans a will is the primary instrument you’ll need to get started. The purpose of a will is to ensure that your property and assets pass to your heirs in accordance with your wishes.
Without a will, a judge may determine who receives your property and assets, in accordance with state laws of intestacy, which might be contrary to your wishes. If you have minor children, your will can name who serves as their guardian in your absence; otherwise, a judge will determine guardianship. Having a valid will, then, is fundamental to your estate plan.
Property and assets passing by a will may be subject to probate, meaning that a judge will be involved in the process of administering the will in accordance to your stated wishes.
Estates consisting of greater complexity of wealth, family business interests, and/or unique family dynamics and needs should consider a trust. A trust may be a more appropriate instrument to address complex needs, target specific concerns, and achieve multiple objectives, such as:
- Protecting an heir from poor financial management
- Accounting for a blended family situation
- Providing for a special needs child
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.
When a trust is used, a will serves the purpose of being a “pour-over will” with the trust serving as the main driver for achieving your estate planning objectives. The primary purpose of a “pour-over will,” then, would be to ensure that assets are “poured” into the trust at death that may not have been previously transferred into the trust prior to death.
3. Plan for where you are in life
When it comes to creating your estate plan, simply start where you are and add to the plan over time.
For example, a single young adult starting out can benefit from a healthcare directive and a power of attorney over assets and financial accounts in the event of medical incapacity. Your healthcare directive ensures that someone else (i.e., parents) can make medical decisions on your behalf if you are unable to make those decisions yourself. Adding a power of attorney for assets and financial accounts can ensure your bills and taxes are paid and your assets are managed if you are incapacitated.
When you start acquiring more assets, get married, or have a growing family, that’s when a will and/or a trust could come into play. When minor children are involved, having guardianship provisions in place is critical to their care and well-being if you are unable to be there for them.
4. Consider your beneficiaries
When it comes to choosing beneficiaries for your assets, different families have different values or beliefs that may influence these decisions. A primary beneficiary usually includes a spouse first, then children and other family members. A charity or cause you care about can also be selected as a beneficiary.
As you plan your estate, it is important to consider the needs and expectations of all parties involved and how competing interests might be balanced. For instance, while an objective in creating an estate plan may be to treat everyone “equitably,” that does not mean everyone needs to be treated “equally.”
For example, if you run a family business, you might leave it to children who work in the business, while providing other assets to those who don’t work in the business. In this instance, everyone can expect to receive an equitable interest in the family inheritance but not necessarily an equal interest.
Likewise, additional support may need to be provided for a child who requires extra financial help while protecting the inheritance of 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.
5. 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, especially death and incapacity. But the sooner you start an open dialogue, the sooner you can address underlying concerns that loved ones might have.
If possible, bring everyone on board early on in your estate planning discussions 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. Creating an estate plan that achieves your objectives and addresses key family considerations is truly an act of love.