Estate Planning 101: What to Know and How to Get Started

By Mary Louden, JD, LLM & Matt Mormino, CFP® | Sep 26, 2018 |

Estate planning is a critical component of your broader financial plan.

You have one even if you think you don’t — it’s called the law of intestate succession, it varies state by state, and it determines what happens to your property if you pass away without a will in place. It’s called the court if financial or medical decisions need to happen when you are incapacitated.

Do you want a court or state law to decide your fate? No matter how many assets (or liabilities) you have, or what stage of life you are in, putting an estate plan in place gives you the power to make sure your wishes are carried out in the event you were to pass away, and to decide who will be in charge of your financial and medical decisions if you become incapacitated.

A basic estate plan includes the following:

  • Will: a legally enforceable declaration of how a person wishes his or her property to be distributed after death.
  • Living Trust or Revocable Living Trust: a trust established during an individual’s lifetime that allows for privacy and probate avoidance upon death. This is optional. Deciding factors are state of residence and relevant probate rules and costs and personal preference.
  • Power of Attorney: a legal document giving a person legal authority to make decisions about the principal’s property, finances, or medical care.
  • Advanced Directive: a document expressing a person’s wishes about critical care when he or she is unable to decide for him or herself. This is not a legally binding document, but it does detail an individual’s wishes around things like being kept alive in a persistent vegetative state or being taken off of life support. It gives a medical power of attorney direction in those extremely difficult times.

When drafting a will, you should consider the following:

  • Personal Representative: The person who will wrap up your personal affairs in the event of your death and carry out the provisions of your will. This person may also be referred to as the executor (male) or executrix (female).
  • Trustee: The fiduciary who will be responsible for any assets left in trust.
  • Guardian: The guardian will be responsible for the care of any minor children. This can be the same person as the trustee, but it does not have to be.
  • Specific Gifts: these can be for people or organizations. Typically, specific gifts are identified as a specific dollar amount or as a percentage of the overall estate.
  • Personal Property: If there is any personal property (art, jewelry, furniture, collectibles, etc.) that are to be directed to a specific person, this is done as an addendum to a will. It can be by a handwritten or typed list, and it can be updated as often as is needed, as long as each update is dated and signed.
  • Residuary Estate: After specific gifts and personal property, it is necessary to decide how remaining assets will be disbursed. For any assets left in trust for a beneficiary, when should they have access to funds? (For example, 25 percent at age 25, 25 percent at age 30, and the remainder at age 35, etc.)

When drafting a power-of-attorney, it is best to separate out financial and medical matters into two separate documents.

In those documents, one will need to consider the following:

  • Agent for Financial Affairs: the person who will step in and carry out financial maintenance and decisions on an individual’s behalf in the event of incapacitation. This person may also be referred to as the “attorney-in-fact.”
  • Agent for Medical Affairs: the person who will step in and make medical decisions on an individual’s behalf in the event of incapacitation. This person may also be referred to as the “attorney-in-fact.”
  • Timing: when the power will become active. Often, the power is granted immediately (even in the event one is not incapacitated) for spouses, and upon incapacity for non-spouses.
  • Secondary and Tertiary Agents: it is best to name a backup for the primary agents, and even a backup for the backup.

Estate planning is a key piece of a comprehensive financial plan. It takes an investment of time and money to put one in place, but it is well worth it to ensure that one’s wishes are carried out and all laws are followed appropriately to make things as easy and efficient as possible for beneficiaries.

The first thing to do is think through these documents and the considerations listed above. It is a great idea to write down your thoughts and wishes. Next, identify a resource to help you execute your wishes. Find an attorney or organization with experience and strong referrals. Learn about what the process will look like and what it will cost.

Finally, make the time to execute the documents. Don’t forget to ask for direction on any needed updates to your 401(k) beneficiary designations, your life insurance beneficiaries, the titling of your home and other assets, and any additional maintenance recommended to you.

Are you looking for advice specific to your situation? Reach out to a member of our team today.

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