How to begin estate planning

What do you think of when you hear the phrase "estate planning?" If it makes you think of billionaires huddling with teams of attorneys, think again. One doesn't have to be rich to need an estate plan. In fact, anyone with savings, investments, real estate or other property – and family or other heirs they wish to leave it to – needs an estate plan. Why? To ensure that their assets will be distributed according to their wishes. Without an estate plan, heirs are at the mercy of the probate courts and tax authorities – and can end up with only a percentage of what is rightfully theirs. 

Regardless of your current age or health status, if you have assets that you wish to pass on to heirs, the time to start thinking about estate planning is now. After all, no matter how young or healthy you are now, unexpected events could change your situation. And estate planning can help ensure financial confidence for your loved ones in just a few minutes, you can learn about the key facts of the estate planning process, including: 

• Why you need an estate plan

• The five key components of estate planning

• How to begin the estate planning process

• Common estate planning mistakes

• Where to find professional help with your estate plan

Why do you need an estate plan? 

While there is no law stating that an individual must have an estate plan, most financial professionals and tax specialists would suggest that you have one. An estate plan is important for several reasons: 

• An estate plan helps to ensure that — in the event of your death — your financial affairs will be settled, and your assets will be divided according to your wishes. Without an estate plan, asset distribution may be determined by the courts via the probate process. 

• It can help to reduce estate taxes and other financial obligations for your heirs. 

• It can help protect your loved ones by designating guardians for minor children and ensuring they receive adequate financial support. 

Estate plans can also include instructions to be followed in the event of your incapacitation, which can eliminate the need for court involvement. And importantly, a well-structured estate plan can protect any business interest you may have, as well as promote family harmony by ensuring equitable distribution of assets among heirs, preventing disputes and maintaining smooth transitions. The more you know about estate planning, the more you’ll appreciate how it can help provide control and protection  for yourself and your loved ones. 

The five key components of an estate plan 

While every estate plan will reflect some unique considerations and circumstances, there are five essential components that should be included in every plan regardless of your specific situation. These are: 

1. Will: A will is a legal document stating how an individual’s assets, properties and possessions should be strategically distributed among their beneficiaries. Many people think of a will as an estate plan in and of itself, but it is actually the first piece in the estate planning puzzle.

2. Power of Attorney: Power of attorney is a legal document giving a trusted person or persons the authority to make financial, legal or medical decisions on your behalf should you become incapacitated.

3. Healthcare Directives: An advance healthcare directive — or living will — is a legal document that states your preferences regarding medical and end-of-life issues such as whether to use life support. A healthcare directive is often recommended even if you have given someone medical power of attorney, because it ensures that your wishes are followed.

4. Trust: When developed by a competent estate planning professional, a trust can help to protect your assets, reduce estate taxes, and help ensure a smooth transfer of wealth to beneficiaries. Trusts can also specify how your assets are managed or used after distribution to your beneficiaries.

5. Beneficiary Designations: Beneficiary designations state who will receive funds from life insurance policies, retirement accounts and other holdings upon your passing. Failure to ensure that they are in place and up to date can lead to costly and time-consuming complications for your heirs. 

How to get started

Even though estate planning can be a complex and highly detailed process, there’s no need to feel overwhelmed. By following a few basic steps, you can be well on your way. To begin: 

• Find a professional to guide you: The first step in the estate planning process is to select an estate planning professional - such as an estate attorney or financial professional - who specializes in this area. They can guide you through the process, help you understand the legal requirements, and provide experience in drafting the necessary documents. 

• Make an inventory of your assets: List all your properties, investments, bank accounts, retirement accounts, life insurance policies, and any other valuable personal possessions or assets owned. Be thorough and include all relevant details, such as account numbers, titles, and locations. This inventory will serve as a crucial reference for developing your estate plan and help ensure that no assets are overlooked. 

• Think about your heirs: Consider the future needs of your heirs - their probable financial situation, potential healthcare expenses, and any unique requirements they may have moving forward. This will help you tailor your plan to meet their needs and ensure their well-being after you're gone. 

• Determine the beneficiaries of your estate: Carefully consider who should inherit your assets and how you want the distribution to occur. Be clear and specific in identifying individuals, organizations, or charities you wish to benefit. It's essential to regularly review and update your beneficiary designations to reflect any changes in your life, such as births, deaths, or changes in relationships. By starting with these steps, you can lay the foundation for a comprehensive estate plan that protects your assets, reduces taxes, and helps ensure your loved ones are provided for according to your wishes. 

Common estate planning mistakes 

People make several common mistakes when it comes to estate planning – but the most common is failure to have an estate plan. Similarly, failure to complete an estate plan in a timely manner before one becomes seriously ill or incapacitated is also an issue. Other common missteps include: 

• Neglecting to update the estate plan on a regular basis: Life circumstances and events — such as marriages, divorces, births, deaths, and significant changes in one’s financial situation – often necessitate changes to an estate plan. Failure to update the plan to reflect new considerations can lead to unintended oversights and consequences. 

• Failure to take maximum advantage of tax-saving strategies: One of the key benefits of a solid estate plan is that it will reduce the tax burden and other financial obligations for your heirs. Comprehensive estate planning – in consultation with a financial professional, tax advisor or other relevant specialist - can help to reduce estate and inheritance taxes and optimize the assets passed on to beneficiaries. 

• Failure to appoint a trusted executor and/or trustee(s): An executor and/or trustee(s) are responsible for ensuring that your estate plan is executed per your wishes. Failure to appoint one or more trusted parties in advance of death or incapacitation can lead to costly procedural delays, complications and disputes among heirs and, in some cases, involvement of the courts. 

Other common mistakes and oversights include failure to appoint guardians for minor children, putting a child’s name on the deed to a property – which can have significant tax consequences – and depending on how the plan is structured, not transferring life insurance policies to a life insurance trust. The list goes on, which is why most people do not attempt to create an estate plan without the help of a financial or estate planning professional. 

How to find the right professional help 

Few people are qualified to develop their own estate plan, which is why it's recommended to work with an estate planning professional. When searching for a competent and trustworthy advisor, start by seeking recommendations from friends, family, or colleagues. This is the simplest route, and firsthand referrals can be invaluable. 

If you prefer to conduct your own research, look for certified estate planning professionals or financial professionals with strong credentials and positive client reviews. Ask them about their approach to estate planning, fee structure, and how they prioritize client goals. Additionally, inquire about their understanding of tax laws and how changes in legislation might impact your estate plan. Trust your instincts and choose someone who not only demonstrates experience but also exhibits professionalism, integrity, and a genuine commitment to your best interests. 

Guardian can help 

If you need help locating an estate planning professional, Guardian can help. A Guardian Financial Professional can help you to better understand the estate planning process, find a legal professional and help you to make the right decisions for yourself and your heirs. To find someone near you, just fill in your zip code and click below. 

Need more financial strategizing information?

Guardian can help.