Estate planning is the process of documenting your wishes and how you want them to be carried out following your death. It’s an essential part of your end-of-life plan. Still, many people aren’t sure what an estate plan entails or why it’s so important.
In this guide, we’ll explain why estate planning is so vital. We’ll also provide insight on the best time to get started on an estate plan and ways you can make the process more affordable.
What is an estate?
An estate encompasses the personal belongings, money, and assets you own at the time of your death. Broadly speaking, your estate includes:
- Real estate, including land and vacation homes
- Bank accounts
- Life insurance policies
- Retirement accounts
- Personal belongings, like jewelry or cars
What is an estate plan?
An estate plan is a series of legal documents outlining how you want your affairs managed after you pass away. An estate plan may address questions and concerns regarding matters like:
- Guardianship, or who will care for your minor children or special needs dependents if you pass away.
- Heirs and beneficiaries, or who will inherit money and property after your death.
- Power of attorney, or whom you trust to make financial and legal decisions if you become incapacitated.
- Healthcare proxy, or who will make medical decisions on your behalf if you become incapacitated.
Many people work with an estate planning attorney or financial planner when creating their strategy. Doing so ensures your plan is legally binding and complete with instructions for all your assets.
What’s the difference between a will and an estate plan?
A will comprises directions for money and property, whereas an estate plan provides an overarching plan of action for your belongings, your loved ones, and yourself.
A will is only one of the many documents that make up an estate plan. Many people make a will and assume it’s enough to protect their loved ones and ensure their final wishes are carried out. However, an estate plan is more comprehensive than a will is alone.
Why are estate plans important?
Estate plans are important for legal, financial, and personal reasons. For example, an estate plan can help ensure that you, your family, and your hard-earned assets are protected before and after death.
Estate plans help eliminate the mental and emotional burden of distributing assets—and the arguments that can unfold between family members if there are no clear instructions. A valid estate plan can also help protect your heirs from a hefty estate tax burden and ensure your wishes are carried out, even if you’re no longer able to express them.
Finally, estate planning can ensure your assets—and your loved ones—avoid the stress of probate court. Without an estate plan, a judge may determine who receives your assets, how your cash is distributed, and who gets to raise your minor children.
Who needs an estate plan?
Generally speaking, anyone who wants their final decisions carried out needs an estate plan. Even if you have a will, it’s a good idea to create a comprehensive estate plan that includes advance health care directives, power of attorney documents, and beneficiary designations. Through estate planning, you’ll ensure all these difficult decisions are made while you’re still alive and able to make them.