If you’ve ever heard the term “estate planning” you may be thinking that it sounds like something for people sipping tea off of imported fine china (a.k.a., the wealthiest of wealthy) and something that would never apply to you. But don’t skip over this important legal tool just yet! Estate planning is actually super beneficial for people of all different financial backgrounds, not just the wealthy. Let’s dig into the meaning of estate planning and what you need to know.
What does estate planning mean?
Estate planning is creating legal documents that specify how your property should be distributed and who should make decisions about your finances and healthcare if you become incapacitated or pass away. It’s as simple as that! Estate planning encompasses the various types of wills, trusts, power of attorneys, and advance healthcare directives. For example, John sets up an estate plan by creating a trust and a living will for himself which distributes his assets upon death and determines who should make decisions on his behalf should he be unable to. The trust and the living will are his estate plan. Simple as that!
Different types of estate planning documents
Let’s discuss the different types of estate planning documents that a person may choose from. And remember, not every document makes sense for every person, so it’s important to speak with a lawyer to determine what is right for you.
A last will and testament
This is the the most essential estate planning document. If you only have one document, there’s a good chance this one will do the job. A will can distribute your assets upon death, you can name a guardian for children and pets, and you can outline final arrangements for your death.
Living will
A living will has nothing to do with distributing property. Instead, it’s used to address future health decisions. You can outline whether you would want life sustaining treatments, certain medical treatments, or other requests.
Medical proxy
A medical proxy names someone to be your “medical” power of attorney and allows them to make all medical-related decisions on your behalf should you become unable to do so. A medical proxy + a living will together are known as an advance directive.
Power of attorney
A power of attorney is appointing someone to make financial and legal decisions on your behalf. This person can do things like file your taxes, take out insurance policies on your behalf, manage your personal matters, conduct certain business activities on your behalf, and more.
Trust
There are several different types of trusts. A trust is a document that sets out conditions for managing your estate. There is a trustee who manages the estate and then a beneficiary who receives part of the estate.
Here’s an example of how a trust might work: John has one daughter who is 12 years old, Anna. If John passes away with a will, but no trust, then his estate could potentially pass to Anna upon finalizing the probate process. This is concerning for John because he doesn’t want Anna to have access to these funds until she reaches a certain age. So, John creates a trust which allows him to set up certain conditions for Anna to receive the assets. His trust states that Anna should receive only 50% of the estate upon turning 18 and then the other 50% upon turning 30. The trustee of the estate is in charge of making sure these distributions are done according to John’s trust.
Who is estate planning for?
Again, when someone says “estate planning” you may have the vision of a posh woman in her late 80s, covered in jewels, sipping imported tea from a very expensive china cup. And then you may think THIS is who estate planning is for. But you’d be wrong! Estate planning is not only for the ultra-wealthy. It’s also for us regular-folk who have a modest estate. Plus, getting a trust, will, or other estate planning document set up isn’t too expensive with modern technology. Here are some people who can benefit from an estate plan:
- People who want to appoint guardianship for minor children
- People who want to appoint ownership and care for a pet
- People who have assets that they want to ensure go to the right people when they die
- People who have assets that they want to ensure go to the right people but under certain terms and conditions
- People who want to make their own medical decisions should anything horrible happen
- People who want to appoint another trusted person to make medical decisions on their behalf
- People who want to appoint another trusted person to make financial decisions on their behalf
How much does estate planning cost?
The costs of estate planning will vary based on what you want to get, where you live, and how complex your estate is. You can expect to pay anywhere from a couple hundred to a couple thousand dollars, depending on your goals and unique circumstances. Luckily online tools make it more convenient and affordable to get an estate plan in place without breaking the bank.
You already have an estate plan in place…but you might not like it
Did you know that you already have an estate plan in place? Yes, that’s right, your state legislature has already created a plan for your stuff if you don’t create one yourself. For example, states have something known as “intestacy laws” which says where a persons belongings should go when they die if they don’t already have a will or a trust. It typically looks something like “50% of the estate goes to the surviving spouse and 50% of the estate goes to the children” but it may vary from state to state. In addition, for medical decision making, there are also laws in place dictating who should be the person to make decisions on your behalf. So, if your state laws aren’t up to par on what you want to happen, then an estate plan is for you!
Where do I begin?
If this is all overwhelming and you don’t know where to start, you may want to consider starting with a will. It’s the most basic option that allows you to do many things at once–distribute assets, appoint guardianship, and make final arrangements for yourself. Plus, it’s generally cheaper to get a will than it is a trust, so starting here may be a good way to get your feet wet. But beware–a will does not avoid probate like trusts. You can also always create a trust down the road after your will is in place.
The bottom line
In the end, estate planning isn’t just for the wealthy elite sipping tea out of their fancy china. It’s a vital tool for everyone, regardless of their financial status. By taking the time to create a comprehensive estate plan, you gain control over your assets, your healthcare decisions, and the future well-being of your loved ones. Don’t leave these important matters to chance or the whims of state law. Take charge of your legacy and ensure your wishes are respected. After all, a well-crafted estate plan is a gift of peace of mind for both yourself and those you care about most.
Nicole Sheehey is the Head of Legal Content at HelloPrenup, and an Illinois licensed attorney. She has a wealth of knowledge and experience when it comes to prenuptial agreements. Nicole has Juris Doctor from John Marshall Law School. She has a deep understanding of the legal and financial implications of prenuptial agreements, and enjoys writing and collaborating with other attorneys on the nuances of the law. Nicole is passionate about helping couples locate the information they need when it comes to prenuptial agreements. You can reach Nicole here: Nicole@Helloprenup.com
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