If all goes right in your life, you'll save your money, increase your assets and eventually pass on your wealth to your heirs. It's not uncommon, however, for complications to arise on the way. That's where proper estate planning comes in. According to AARP, six in 10 adults haven't made a will, and that means even fewer have an estate plan.
Maybe you have never thought about estate planning. Read on to see why you should think about it, and how to get started when you do.
What is estate planning?
What's the difference between a will and estate planning? A will is only one component of estate planning, which encompasses a lot more.
- Will or trust - This clearly outlines a person's wishes, which makes it a critical part of estate planning. Trusts also help ensure wishes are carried out in a specific fashion.
- Durablepower of attorney (POA) - This designates the person you trust to carry out your wishes if you can't do it yourself, including all financial and legal decisions. Without a POA, a court may be the one deciding what happens to your assets.
- Designated beneficiaries- These are the people you wish to receive your assets. Once you choose them, you'll choose contingent beneficiaries to receive your assets in case your primary beneficiaries are no longer alive. That ensures that people you want will receive your assets, not a court.
- Letter of intent - This is designated for your executor or beneficiary, to specify how you want your estate, specific assets, funeral or other wishes carried out.
- Health care power of attorney-Thisdesignates the person, usually a spouse, child or other family member, to make critical health care decisions on your behalf if you become unable to do so. Be sure to designate a secondary person you also trust, as a backup.
- Designated guardians for children - These are the persons you choose to make sure your children are well-cared for. When selecting the person for guardianship, be sure he or she is willing and able. Choose someone who can fulfill the important role in a way you agree with (i.e., values, religion, etc.). A secondary guardian also is a smart move, to ensure that your children don't become wards of the state.
You don't want to miss any steps, because doing so could not only cost your heirs financially, your wishes may not be carried out as you intended.
Who should consider estate planning?
Estate planning is not just for older people. It's never too early to start. Even if you aren't yet close to retirement age, shouldn't you want to make sure your wishes are carried out if something happens to you? Everyone should consider estate planning, regardless of what you own:
- Car, boat or motorcycle.
- House, land or any kind of property.
- Furniture and other tangible possessions.
- Checking and savings accounts.
- Investments and retirement accounts.
- Life insurance.
Any one of those assets is worth passing on to the people you care about, including charitable donations you may wish to make. Making preparations for how they are to be distributed ahead of time also can save your heirs from paying extra taxes, court costs or legal fees.
How to get started in estate planning
Some people worry that estate planning is too expensive, but you can start with a basic plan and move up from there. Estate planning is an ongoing process, not a "once-and-done" event. Circumstances change (divorce, remarriage, child/beneficiary gets married), assets are bought and sold, you start a business or you have additional children or stepchildren.
Fees vary depending on individual circumstances, but if you do your homework up front, you'll know exactly what you'll be charged. As with shopping for anything else, get a second quote and find out whether there is an upfront cost.
Planning also can reduce probate and other costly fees. It's important to never underestimate the importance of estate planning.
The bottom line is this: Who do you want carrying out your final wishes, your family (or close friends) or a court? Getting your estate planning accomplished will bring you peace of mind. Protect your family and your assets; work on an estate plan today.
At Guided Choice we believe in helping people reach financial freedom, and we constantly work to do just that. We are dedicated to bringing you insights and information that help you make better, more informed decisions to improve your future.