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Estate Plans: Not Just for the Wealthy

There are several misconceptions about estate planning. For instance, many people think you need to be ultra-wealthy to create one, or that they are only relevant to parents with young kids and senior citizens.

In reality, an estate plan covers a variety of different scenarios —it can help protect you if you get in a car accident and need medical care while unconscious or keep your finances private if that same car accident kills you.

What is an estate plan?

An estate plan can vary by person, but in general, it includes:

  • A will
  • Trust(s)
  • Durable power of attorney
  • Healthcare directive
  • Beneficiary designations
  • Guardianship designations

We’ll go into these in a bit more detail. However, it’s important to create an estate plan that’s supervised by an estate planning attorney who understands the laws in your state and common pitfalls and loopholes.

A will is a legal guide for what you want to happen to your possessions when you die. One of the most important parts of a will is who you name executor. This person becomes responsible for carrying out the wishes outlined in your will. If you don’t name an executor, this person is selected by a judge —it’s usually your closest living relative.

When you die, your will goes through probate, which is a public process involving a court. Having a valid will makes this process easier, but you still go through probate. And probate is public, which means any information that goes through this process becomes part of the public record. Many people don’t want details of their estate made public.

Trusts do not go through the probate process, so they can be a good way to efficiently pass assets on to beneficiaries. There are various types of trusts (revocable and irrevocable) for different purposes (legacy, charitable giving, special needs, and so on). Revocable living trusts are the most used in estate planning.

When you create a trust, you are the trustor. You also name a trustee —the person who will control your trust, as well as beneficiaries, who receive the assets within it.

A power of attorney gives someone (the agent) the right to act on your behalf when it comes to financial matters. A durable power of attorney lasts after you’re incapacitated. Essentially, if you are hit by a car and unconscious, this is the person who makes sure your mortgage gets paid.

There are different types of powers of attorney. Medical powers of attorney are often granted as part of a broader healthcare directive (sometimes called an advanced care directive), which details your wishes in case you’re unable. You can tell your agent what you’d like them to do. The rules and forms for these directives vary by state.

Your estate plan also needs to detail who gets what. Things like retirement accounts and life insurance policies don’t go through probate, and instead, pass directly to the named beneficiaries. That means you need to name who you want to be the beneficiary on these accounts. (If you have a trust, it’s possible to name a trust as the beneficiary for these.)

Finally, if you have kids, your estate plan needs to detail who you want to be their legal guardian if anything should happen to you. You’re not legally required to notify this person (they don’t need to agree to it), but most people have this conversation ahead of time to ensure whomever they name as guardian is comfortable taking on that role should the need arise.

For most people, estate planning isn’t fun. It requires you to think about, in great detail, a lot of worst-case scenarios that we’d prefer not to think about. But planning ahead ensures that, if any of those worst-cases should occur, your loved ones would be taken care of and that your wishes are carried out. Creating an estate plan ensures you make the important decisions, versus a probate judge, or the wrong person.

Financial Journey LLC is a registered investment advisor offering advisory services in the state of Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment, legal, or tax advice.

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1 Comment

  1. My husband and I are hoping to get our estate planned over the course of the next couple of months. Thank you for explaining that we need to determine a legal guardian for our children. This is definitely something to consider. It would be smart for us to consult with an estate planning attorney to help us with this process.

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