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What is Estate Planning?

Estate planning is the process of planning for how you want your property and assets distributed after you pass away. It’s a key aspect of financial planning.

June 20, 2022

As we get older, we need to start making plans for our assets and estate. This is particularly true if we have children, but everyone should have a plan for their eventual passing or incapacitation. 

You’ve likely heard the term “estate planning,” but what is it? This beginner’s guide goes over the basics of estate planning and on how to get your plan started. 

What is estate planning?

Estate planning involves preparing your “estate” (your assets) for your eventual death or incapacitation. 

Tasks involve drafting a will, creating a plan for estate taxes and taking steps to ensure that your wishes are met upon your death. 

Estate planning is usually approached with the help of an attorney or estate planning professional. Depending on the value of the estate and other details, it can be either a quick process or an involved ordeal. 

Regardless of the size of the estate, having a plan is very important. If you pass away without a will, your assets may not be distributed the way you wanted. 

Estate planning allows individuals to be proactive. It’s also a way to minimize the effect of estate taxes, particularly for wealthier households. 

Who is estate planning for?

Estate planning is for just about everyone who has assets and wants their wishes to be fulfilled should they pass away. 

It’s often thought of as something that only older people do, but life is unpredictable. It pays to have a plan. 

However, those who absolutely must enter the estate planning process are older individuals, those with significant health concerns and those with substantial assets. 

The more complicated a situation is, the more estate planning is necessary. A single person with minimal assets and no children may just need a simple last will and testament, while a large family with substantial assets will need significantly more planning. 

Estate planning professionals

Estate planning isn’t typically an activity to do on your own; the process can be complex and the wrong approach might not only overcomplicate things but also increase your tax bill.

Most people will benefit from seeking professional guidance in the estate planning process. This will typically be an attorney — often one who specializes in estate planning.

Rules in each state vary, but you can find estate planning professionals in your area to help. It’s wise to choose a local attorney who’s well versed in your state’s estate laws. Attorneys can be expensive, but it’s well worth the cost. 

For simple estates, a fiduciary financial advisor may be able to help you. But for most estates, a dedicated estate planning attorney is recommended. 

The estate planning process

There are many tasks involved in estate planning. The details will vary depending on the size of the estate and the wishes of the individuals involved. However, here are some of the most common tasks:

Writing a will: A last will and testament, also known as just a “will,” is a legal document that designates where you want your assets distributed upon your death. 

Naming a guardian: If you have children, estate planning also involves making arrangements for who’ll be their legal guardian should you pass away. 

Naming an executor: The executor of the will is someone tasked with overseeing the process after your death. They are given substantial legal rights and need to be someone you and your household trust implicitly. 

Assigning beneficiaries: The will outlines who your beneficiaries are, but you may also need to take steps on the individual account level. For example, you may need to log into your brokerage account and update your beneficiary on that account. 

Setting up trusts: Trusts allow you to transfer assets to your beneficiaries (heirs) in a more tax-efficient manner. If done proactively with the help of a professional, trusts can help reduce estate taxes. 

Establishing funeral arrangements: Estate planning may also involve making arrangements for your funeral. 

Establishing charitable donations: Making charitable donations is a part of estate planning for many households. This can help leave a legacy as well as reduce estate taxes. 

Establishing power of attorney: Power of attorney is a legal right that gives an individual the legal authority to act on behalf of another person. For example, if you assign your adult daughter power of attorney, she can then make legal decisions for you should you become incapacitated. 

There may be other tasks, as well. By working with an estate planning professional, you can receive guidance on what steps you’ll need to take to properly protect and prepare your estate. 

Bottom line

So what is estate planning? Essentially, it’s about preparing for the future, making sure your wishes are known and respected upon your death and ensuring that your assets are distributed as you want. 

Estate planning can also help to lower estate taxes, reduce the tax burden on your heirs and minimize stress for your family. Death is inevitable, but with a proper estate plan in place, you can handle the logistics ahead of time and allow your family to grieve unobstructed by financial obligations or red tape. 

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† To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. Based on your credit history, the APR (which is the same as your interest rate) will be between 7.90% - 29.99% per year. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.