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If you thought estate planning is only for the sick or elderly, think again. It’s an unfortunate truth that death can happen to anyone at any age, and you wouldn’t want to leave your family to pick up a piece of a disreputable property when you die while they settle their grievance. Instead, take the weight off their shoulders and make arrangements in your absence.
Every time you stop and think about what will happen to your estate after you die, you are in the early stages of estate planning. But now might be a good time to take those plans a few steps further, with our guide to estate planning and how you can make it—no matter what your age.
By taking charge of your finances and learning about estate planning, you can feel confident that you have taken a necessary step to protect your family and your assets.
What is Estate Planning?
Estate planning is the act of hiring an estate planning attorney — or fiduciary — to help you prepare your estate, estate, charitable gifts, donations, and transfers of money in case of death or disability.
This means that if you are unable to represent yourself at the end of your life, you will have a plan to divide your assets (or assets) among your loved ones.
It also means that you can also set up health care directives and a medical power of attorney to comply with your will if necessary.
3 Elements of Estate Planning
Whether you are creating your first estate plan or updating later in your life, there are three basic elements that every estate plan should have:
1. Wills and Trusts
People under the age of 40 must make a will or living trust to ensure that their assets are accounted for in case of accident or sudden illness. Since they are both documents that detail how assets should be handled after death or incapacitation, the difference between a will and a trust can be confusing.
Wills:
- tends to be more affordable than trusts
- effect only after death
- Go Public After Probate
- are slow to transfer assets
- may have to go through probate
Living Trust:
- are more expensive to carry out
- will be private
- can provide for your intensive care or disability
- Avoid Probate
Both Will and Trust:
- Allow You to Leave Property to Children
- You name the primary beneficiaries
- Can be changed
2. Power of Attorney
A Power of Attorney (POA) is a binding legal document that enables someone to make decisions on your behalf regarding your legal and financial matters. A POA goes into effect if you die unexpectedly or are disabled and unable to care for yourself. These documents contain specific instructions for attorneys based on the specific circumstances of your estate plan.
If you do not apply a power of attorney while you are alive or physically capable, the court may need to appoint someone to take charge of your assets, make life-changing decisions, or even pay your bills. Someone has to be appointed for this.
With this in mind, lawyers aren’t the only people who can get your POA – family members can take charge too. For example, your sibling may be your medical POA.
There are several types of powers of attorney, including:
- Permanent Power of Attorney: This is when you allow someone to make decisions on your behalf. This is standard PoA.
- Limited Power of Attorney: Limited power of attorney limits the power of your attorney or representative to non-general POA such as financial and medical power of attorney.
- Medical Power of Attorney: This is when you allow your attorney to make medical decisions if you are unable to do so. These include end-of-life decisions, surgery, and medications.
- Financial Power of Attorney: Like a Medical POA, you allow someone to make decisions about your money and assets if you are not able to do so.
- general power of attorney: This is a POA that ends when you are disabled and allows your representative to control financial, medical, legal, business, health and property matters.
For the most part, you’re able to update your power of attorney as you see fit throughout your life—a medical POA is the exception because the best way to replace it is to create a new one. You will usually change the POA when you appoint a new estate planning attorney or representative to cover your cases.
3. Health Care Guidelines
Like a medical POA, a health care directive carefully details your end-of-life wishes and care. These documents sometimes include a durable POA that allows another person to make health care decisions for you. They may also include a living will that details your will based on your guidelines if you become incapacitated.
How to Make an Estate Plan at Any Age
Planning an estate is important for people of all ages—especially those who have kin or equity in the form of a prized asset like a home or other asset, savings account, or family heirloom.
Although we may conjure up the image of an elderly person when we think of creating an estate plan, accidents and illnesses can happen to people of any age.
40. Under Estate Planning
When creating an estate plan for under 40 years of age, you will first need to find a reliable estate planning lawyer to handle your assets. Decide the appropriate Power of Attorney that suits your lifestyle. Then, create a living trust or will to ensure that your estate plan is taken care of in case of emergency or disability.
40. more than estate planning
When you reach your 40s, it’s important that you start to be more specific with your estate planning. Within the next two decades, you should have a long-term retirement plan ready and an updated durable POA that includes health care directives and even living trusts, depending on your circumstances.
Whether you are in perfect health or ill, it is recommended that you have an estate plan until the age of 55. You can set aside assets for charitable purposes at this stage of estate planning.
Here are the steps to charitable giving with an estate plan:
- Designate a will for a charity that is near and dear to your heart.
- Choose a predetermined portion of your assets to donate.
- When the estate plan comes to fruition, the money will go to your chosen cause.
Planning for Wealth Tax Liabilities
The last thing you want to worry about is an estate plan tax that affects your family after you pass away. After transferring your gross assets, assets and other assets, if it reaches a certain limit, they will be taxed. This is often referred to as the death tax or property transfer tax.
For 2022, your family generally won’t be required to file an estate tax return if your gross assets are less than $12 million — and that number will increase every year. If your assets reach the limit and you want to reduce it, you can donate a portion of your assets to charity, transfer it to a surviving spouse, or give assets to friends and family while you are alive. can give.
Benefits of Estate Planning
Estate planning is much more than making a will and end-of-life decisions – there are many other benefits that come with careful estate planning. This includes:
- Reduce taxes and debts for your loved ones with gifts and matrimonial trusts
- charitable donation from a portion of one’s property after death
- An easy transition of funds for small business owners to their family, friends or co-owners
- Cover Your Own Funeral Expenses to Save Costs for Loved Ones
- Can protect your family from probate, which can be an expensive process
Common estate planning mistakes
Estate planning mistakes can be made for the everyday person, especially if you try to do everything yourself. The biggest mistake a person can make when creating an estate plan is not hiring the right representative for their estate.
Another common mistake is forgetting to update your will or power of attorney throughout your life. If you have a portion of your assets given to a specific beneficiary who has died, there may be confusion or a legal battle in the wake of your death.
For example, let’s say you requested that your assets be divided equally among your children, but one has died. When you pass away, their spouse or children can claim they are worth a portion of your estate. If you don’t clear your estate plan by specifically naming your loved ones, the confusion it can lead to family splits.
Estate Planning FAQs
You may have more questions when it comes to the basics of estate planning. Luckily, we’re here to help answer some frequently asked questions.
How Expensive Is Estate Planning?
The cost of hiring an estate planning attorney to draft a will or living trust will vary according to your needs and location. They can range anywhere from less than $1,000-10,000+ for more complex estates.
If you have large assets, the cost of your will can go up a lot. If you have a simple estate and very few assets in your name, an estate plan may be cheaper to execute.
What are Common Estate Planning Documents?
Every estate plan must include a will or trust, power of attorney, health care directive, guardian and beneficiary designations and a letter of intent.
Budget today for your estate planning
Now that you know the intricacies of what an estate plan is, when to start planning for one, and the documentation required for both your family and your attorney, you can take the next step in your estate planning journey.
As you begin looking for investments for your estate planning, remember that preparation is key. Check out our retirement planning calculator or net worth calculator to determine how much you’ll leave for your family once your estate plan is in place.
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