What have you already checked off your financial to-do list? You may have taken certain actions, such as planning for retirement or purchasing life insurance, which may give you additional peace of mind for tomorrow. However, is an estate plan also on your list?
For many people, estate plans may not come to mind as quickly as other financial considerations. Why? Often, there is a misconception that estate plans are only for people in the highest income brackets. While you may not have a sprawling estate in the countryside, you don't need to own a physical estate to benefit from estate planning. Families at every income level can incorporate estate plans into their overall financial logistics.
What Is an Estate Plan?
The primary purpose of an estate plan is to help ensure your wishes are respected if you pass away or are alive but cannot communicate. Your estate is whatever you leave behind, regardless of its value, including property, bank accounts, material possessions, etc.
If you die without an estate plan in place, your estate could go to probate court. This may come with a whole slew of unwanted problems for your loved ones. Probate court creates open records, which means the details of your estate and what your family and friends receive would be public. More importantly, however, probate court means a probate court judge would make decisions about how to distribute your assets. In turn, this may open the door to dispute among your beneficiaries, which could lead to additional litigation over what happens to what you've left behind.
One thing to really understand about estate plans: It's not just about you. Your plan could also help protect your loved ones in critical ways. Understanding what's included in estate planning documents may help you see why such plans could be helpful for anyone to have.
An estate plan consists of many legal documents:
- Last will & testament: This is the document most people are familiar with. Your will determines how you will pass your assets or possessions on to your loved ones. You'll need to name an executor of your will, and this person will oversee the process of distributing what you leave behind according to your wishes. Your will can name guardianship for your children too.
- Power of attorney: Power of attorney gives the person you name the ability to act in your best interest in a variety of scenarios. If you assigned someone power of attorney, for example, you would be giving them the ability to write checks or handle your bank accounts on your behalf (among other things).
- Advanced medical directive: Also known as a health care proxy or health care directive, this document allows you to designate someone to make medical decisions on your behalf should something happen that leaves you unable to communicate your wishes yourself.
- Revocable living trust: Your estate plan may also include a revocable living trust, which details what you want to happen in multiple situations — from when you're alive and healthy to a scenario in which you're incapacitated or you pass away.
An Estate Plan Is Also for Your Loved Ones
What is one of the most important reasons to have an estate plan? A plan could help you protect your children who are still minors. If you die without an estate plan in place, a probate court judge will determine guardianship for any of your children who are under the age of 18. You likely want to make this choice for your family, and an estate plan could help you ensure the decision doesn't fall to a judicial stranger.
Dying without an estate plan can also put the burden of distributing whatever you leave behind (i.e., anything in your name at the time of your death) onto important people in your life — who will want time and space to grieve your passing. Also, can you be sure the people you want to leave your possessions to will understand what you would have wanted or intended? Failing to put legal documents in place to make your wishes clear could cause confusion or (worse) contention among your loved ones. Consider reaching out to a legal professional who could help you put a plan in place to protect you, your family and other loved ones.
When it comes to determining an estate plan cost, know that it will likely vary depending on where you live and who you hire. Attorneys in large cities, for example, may cost more than lawyers in rural or suburban areas. Before making a final decision, reach out to an estate planning attorney who could help guide you to the right solution for your needs.
While you may never having a sprawling country estate, an estate plan help could give you something much more significant: the feeling that you are doing all you can to protect your loved ones.