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Estate Planning Basics

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Estate Planning BasicsEstate planning is one of the most important components of a financial plan.  It also tends to be one of the areas people neglect the most.  I can’t tell you how many new clients I have met with who haven’t had an estate plan in place.

What is an Estate?

An estate consists of all of the property that a person owns at death, including the following:

What is Estate Planning?

Estate planning is the process of putting in place legally effective arrangements whereby a person can accomplish the following:

  • Plan for incapacity
  • Reduce or eliminate potential fees and taxes
  • Plan for business continuity
  • Avoid probate
  • Appoint guardians for minor children
  • Protect assets
  • Achieve charitable goals
  • Spell out healthcare wishes
  • Ensure an efficient distribution of assets

Estate planning requires that you think about and answer important questions such as the following:

  • What assets do I own and what are they worth?
  • When I die, who do I want to receive my assets, how should they receive them, and when?
  • Who do I want to care for my minor children if I become incapacitated or die?
  • What charitable causes do I want to support?
  • Who do I want to make important healthcare decisions or manage my assets on my behalf if I am unable to?

Proper estate planning can make the process of dealing with incapacity and death much smoother for you and the people you care about.

Who Needs Estate Planning?

Pretty much everyone should have at least a basic estate plan in place.  Your home may never burn down and you may never require long term care, but you will definitely die some day.  Significant wealth, business ownership, domestic partners, blended families, special needs beneficiaries, and other special situations can bring additional complexity.

Potential Consequences of Not Having an Estate Plan

Below are some of the adverse consequences that could occur without a proper, up-to-date estate plan:

  1. Your assets do not pass to the people you desire in the time and manner you wish.
  2. You, your estate, or your beneficiaries pay significant taxes and fees that could have been avoided.
  3. Some or all of your assets are subject to probate, and the additional delay, costs, and publicity that probate entails.
  4. Retirement accounts and life insurance proceeds do not pass to the beneficiaries you wish.
  5. At your death, your minor children are not taken care of by the people you would have chosen.
  6. Your business must be sold outside of the family in order to pay estate taxes.
  7. Your funeral wishes are not known and thus not fulfilled.
  8. Upon your incapacity, someone other than the person you would have chosen is assigned to manage your affairs.
  9. Your surviving spouse and children are left in dire financial straits upon your disability or death.
  10. Significant assets pass immediately to heirs who are not prepared to handle such wealth responsibly.
  11. Assets are not kept in the family.
  12. There are significant disputes regarding the distribution of your estate.
  13. Children from different marriages and your current spouse are not given the treatment you desire.
  14. Your charitable goals are not met at all or not in the most tax efficient manner.

DIY Estate Planning or Use a Professional?

There are many companies that sell estate planning documents online that you can download and execute yourself quickly at a fraction of what an attorney would cost.  Should you use one of these services or should you seek out expert advice from a qualified professional?

Estate Planning Professional

Using an actual estate planning professional will always be the safer option.  It is also likely the more expensive option.  The cost of paying a professional to help you with your estate planning will depend on where you live, the specific professional, the services you seek, and your specific situation.  To get an idea of the cost, look up a few estate planning professionals in your area and ask what they charge.

When you use an actual professional, you have the reassurance that a trained and skilled practitioner has has looked everything over and that  the documents and/or planning reflect your wishes and are legally valid.

If you can afford to pay a professional, then I highly recommend that you use one.  It is crucial to use a professional if there is any complexity involved.  Also note that although many professionals can assist with various aspects of the estate planning process, only attorneys can draft legal documents.  If you need legal documents drafted, such as a will or trust agreements, I highly recommend using an appropriate estate planning attorney.

Do It Yourself

DIY estate planning is far cheaper.  You generally answer some questions, and then the software will generate the various legal forms reflecting your answers.  However, a professional generally does not review the documents.

Online estate planning documents may be appropriate for people with no legal or financial problems who have a fairly vanilla fact pattern.

Common DIY estate planning options include the following:

Dynamic process

Estate planning is a process rather than a “do it and check it off your list” item.  As your personal and family circumstances evolve and laws change, your estate plan will likely need to be updated accordingly.

Major events in life are obvious times to review an estate plan:

  • Getting married
  • Having children or grandchildren
  • Moving
  • Getting divorced

My wife and I created our first estate plan shortly after we were married.  We had it updated after we moved states, since different states have different laws and requirements.

I generally recommend that people review their estate plan every few years to make sure that it properly reflects their wishes and any new legislation.

Once you have an estate plan in place, make sure all of the documents are organized and stored in a safe place.

Additional Reading

For additional information on estate planning, consider reading one of the following books:


Do you have an estate plan in place yet?  What are your thoughts on estate planning?  Leave a comment below!

Image: Mybaitshop/Bigstock

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