Estate Planning 101


When someone talks about estate planning, do you think of wealthy relatives with lots of property and money in the bank? The truth is that we all have some form of estate or legacy, so we all need to go through estate planning—and the earlier the better. Consider this blog post your introduction to Estate Planning 101.

What Is Estate Planning?

Your estate is everything you own in the eyes of the law. That would include your home, car, vacation property, bank accounts, investments, retirement funds, even your Pokemon card collection. Your estate also includes any intellectual property, such as the rights to a book or song that you wrote.

Estate planning is more than just writing a will to divvy up your worldly possessions. It is a much broader strategy that you should think of as part of retirement planning. Estate planning includes organizing and making arrangements for all your affairs after you die, including your assets, property, and family heirlooms. It is also designed to make your last wishes crystal clear to your loved ones.

Estate planning is a form of proactive protection for yourself and your family. The goal of estate planning is to be sure you have arranged the dissolution of your assets, including your savings, in a way that minimizes the tax burden for your relatives. It also includes medical instructions in the event you fall ill and can’t make your own decisions, and it addresses important issues such as who will become caregivers for your children and your pets.

In basic terms, estate planning is taking the steps necessary to make sure your assets are disbursed as you wish after death, whether you plan to leave property to your spouse, your siblings, your children, a nonprofit, or a charity. If you have a will in place, it makes it easier for your loved ones to deal with funeral arrangements, debts, and other needs.

As part of estate planning, you will want to designate an executor who will be responsible for ensuring your wishes are carried out. If you don’t make a will or name an executor, then the court will do it for you, usually designating a spouse, eldest child, or nearest relative for the job. If you have a will in place and your financial affairs in order, it will spare your relatives a lot of trouble dealing with the probate court and trying to sort out your estate.

It is also important to consider what should happen if you become too ill or infirm to manage your affairs. As part of your estate plan, you should designate someone to give someone a power of attorney for your healthcare, which gives them the authority to make medical decisions on your behalf, if necessary. For example, do you want a “do not resuscitate” order in place? Someone needs to be able to act on your behalf.

A good estate plan can help you minimize the burden placed on your loved ones and save them money in estate taxes and other costs at the same time.

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Starting Your Estate Plan

To start your estate plan, begin by taking inventory of everything you own (and everything you owe). You need to have a list of assets before you can start making out your last will and testament.

As you create your inventory, think of anything of inherent or sentimental value. Consider any property you may own, such as a rental property or a vacation home. Be sure to list your vehicles and big-ticket assets such as motorcycles, boats, and motor homes. Make a list of all your cash, bank accounts, and investments. Gather paperwork such as the mortgage information on your home, the title to your car, a list of bank and investment account numbers, and other details that your executor will need, as well as the account numbers that go with them.

This is also a good time to decide what to do with family heirlooms such as your grandmother’s silver or your father’s fly-fishing equipment. If you have possessions with sentimental value, determine who should get them. If you want to allocate money to a charity or designate a special gift, note that as well.

Also, make a list of your debts. You may have a mortgage, car payments, credit card debt, student loans, or other financial obligations. Include your account information and amounts on the list, and add everything up to see how your debt compares to your assets. When you die, someone needs to clear up any remaining debts. Under certain circumstances—for example, if you don’t have an executor—probate will pay your final bills from the estate before distributing what is left to your heirs. There are ways to avoid probate, such as setting up a trust. Consult your estate planning professional to review your options. Keep in mind that if your debt exceeds the value of your estate, your heirs are not responsible for your debt.

Think about other issues that need to be considered in case you die suddenly. If you have children or dependents who are minors, be sure to appoint a guardian. If you have pets, determine who should take them. Also consider things such as life insurance, annuities, and related retirement assets.

Tackling the Estate Plan Paperwork

You will need to prepare several legal forms and documents as part of your estate plan—and iQ is here to help you. As you start reviewing your family’s needs, remember that your will is your final opportunity to take care of your family. Do you have enough life insurance to help cover living expenses? Do you have to appoint a guardian? Do you have an advanced medical directive in place? These details will affect the types of documents you are likely to need.

  • A will: Your will outlines how you want your property distributed and how you want affairs such as your funeral to be arranged when you die. Without a will, your relatives will have to spend time and money dealing with the probate court and determining how to handle your estate. Having a will in place eliminates arguments and guesswork. Leave your will in a secure place—ideally outside the home in case of a fire or other disaster—and tell your family where to find it. Also, be sure to include a list of online accounts with usernames and passwords.

  • A living will: A living will is a separate document with instructions in case you are hospitalized or incapacitated. A living will is different from an advanced directive. With an advanced directive or medical power of attorney, you are designating someone to make medical decisions for you if you are hospitalized and can’t make them yourself. A living will outlines your wishes regarding critical care, such as whether you want to be sustained on life support or if you want a “do not resuscitate” directive. States differ on how they treat living wills, advance directives, and medical power of attorney, so consult an estate planning professional to be clear about the differences.

  • A living trust: A living trust is another type of estate planning tool. You can transfer ownership of money and property into a living trust, naming a trustee to manage the trust and disperse the assets when you die. There are revocable trusts, which can be changed at any time, and irrevocable trusts, which cannot be changed once they are created. Having a living trust saves time and money because you don’t have to wait for decisions from the probate court. Additionally, a living trust is harder to challenge than a will, and it provides more privacy (a will is a public document, but a trust is private).

  • Power of attorney: You want to have a power of attorney in place to make decisions on your behalf if you are no longer mentally competent. There is durable power of attorney, which cannot be revoked, and non-durable power of attorney, which means the court gets to choose a guardian if you are incapacitated. State laws differ, so it pays to consult a legal professional.

The best lesson you can take away from Estate Planning 101 is to consult an estate planning professional. iQ Credit Union has financial advisors who can help with your estate planning. Your retirement strategy, including estate planning, should change as your family needs change, and a trusted financial advisor can help you be prepared for whatever the future may hold.




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