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An estate plan can help create security for your family. Yet misconceptions surround estate planning. Many people think you need to be ultra-wealthy to create one, or that they’re only relevant if you have dependent children.

However, an estate plan can be helpful in a variety of different scenarios. For instance, a healthcare directive can help protect you if you get in a car accident and need medical care while unconscious. If that same car accident were to kill you, an estate plan can help keep your finances private. Let’s dive into what goes into an estate plan so you can better assess whether you need to create one.

What is an estate plan?

An Estate Plan can vary by person but in general it includes:

-       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 know that these are all legal documents; you need to consult with an attorney to create an estate plan. This attorney can help you build a plan that’s optimized for your personal circumstances and location (state laws tend to vary for these documents, from the rules to the terminology).

It's also important to recognize that an estate plan is separate from the estate tax, or the tax levied on inherited assets above a certain amount.

The components of an estate plan

You may not need every element in this list, but it’s helpful to understand what each document does.

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. The executor ensures your will is carried out; if you don’t name anyone, a judge will usually select someone, often your closest living relative.

When you die, your estate may go through probate — a public process involving a judge. In some states, probate is automatic. In others, certain estates can bypass probate. A will can make probate easier but it remains public record. There are ways to title and transfer assets (e.g., "transfer on death" accounts) that may help you avoid probate.

Trusts can also transfer assets to beneficiaries without the high cost of probate. They may offer more control over what happens to your assets after death or help manage assets you want to pass to minors or dependents. The topic of trusts is too vast to adequately cover here, suffice it to say they can be a helpful tool when you’re alive and healthy, as well as useful tool for transferring assets upon death.

Retirement accounts, annuities and insurance policies don’t go through probate; they transfer directly to beneficiaries. You’ll want to ensure you have up to date, named beneficiaries on all such accounts and policies.

List care instructions for your children—specifically, an estate plan should detail who you want to be your child(ren)’s legal guardian if anything should happen to you. You’re not legally required to notify this person, as they don’t need to agree to it, but it’s a very good idea to make sure they’re comfortable with the arrangement.

A power of attorney gives someone (the agent) the right to act on your behalf. A durable power of attorney lasts after you’re incapacitated. Essentially, if you are hit by a car and unconscious, the person with your durable power of attorney would make decisions on your behalf. There are two general types: medical and financial. Keep in mind, once a child turns 18, parents aren’t entitled to make decisions for them. If your college-age child is incapacitated in a car accident, for example, you can’t dictate their medical care without a medical power of attorney (any care decisions would legally fall to the doctors). You would need a financial power of attorney to manage their finances while they recover.

For most people, Estate Planning isn’t fun. It requires you to think about a lot of worst-case scenarios in detail. But a completed estate plan can offer the peace of mind that your family (and you) will be taken care of if anything bad were to happen. 

Additionally, going through the legal documents and considerations of an estate plan may uncover other financial and tax planning opportunities. For instance, trusts can help with tax planning and charitable giving while you’re alive. At Quorum Private Wealth, we often consult with clients’ tax and legal advisors on ensure that appropriate estate planning is executed and updated.


Sources:  AARP