Estate Plans: Why you need them and steps to get started.

If you’re an adult with aging parents, you may be thinking or talking about what estate plans they have in place. Estate plans are important no matter your age — especially if you have a spouse, partner or children.

This article walks you through the basics of estate plans, why they’re important, and how they can be used to protect your assets and family.

First, it’s important to understand what some terms mean:

What is a will?

A will is a legal document that outlines how you want your assets distributed and who will care for any minor children, dependents or pets after your death. A will is often one piece of a broader estate plan.

What is an estate?

Your “estate” includes everything you own, from money in your bank accounts to your car, your home if you own one, and all your belongings.

What is an estate plan?

An estate plan is a set of legal documents that may include a will, any powers of attorney, and any trust documents. Here’s how having an estate plan gives you more control:

• Decide who can make financial and medical decisions on your behalf if you become incapacitated.
• Determine how you want your assets distributed and personal matters handled when you pass away.

Why do I need an estate plan?

Estate planning is an important piece of your overall financial picture, even if you’re young or don’t have many assets. “If you pass away without an estate plan, there could be unintended outcomes regarding what happens with your property,” said Andy Hoffman, private client advisor with Commerce Trust.

“That can mean your wishes aren’t followed, which can add stress and delays for loved ones and unexpected tax consequences.” Without planning, the court has the responsibility to divide assets or the proceeds of assets among beneficiaries as laid out according to the applicable state law, after the court deducts associated costs and fees.

Once you get plans in place, it’s important to review them every few years, “especially as you experience life changes like marriage or the birth or adoption of a child,” said Hoffman. They should also be revisited in the case of divorce, blending families, empty nesting or retirement. It’s also important to be specific about beneficiaries; for example, leaving everything to one child and assuming that they will divide things equally with their siblings can lead to family strife, misunderstandings or worse.

What does an estate plan include?

Below are some of the most common components of an estate plan.

• A will opens in a new window provides specific instructions about how you want your assets distributed after you pass away. If you have minor children, it may name a guardian, along with any instructions relating to their care. A will can also specify wishes related to your funeral and funeral expenses.
• A medical directive, also known as a living will opens in a new window, specifies what kind of care you want (or don’t want) in the event that you’re physically or mentally unable to speak for yourself. A living will also outlines your wishes for end-of-life care.
• A trust is a legal arrangement where you, the creator (or “grantor”), transfer assets to a trustee (a person, persons or institution) to hold and manage for the benefit of yourself or your chosen beneficiaries with built-in rules about how and when those assets can be distributed.
• An executor is the person you designate to carry out the instructions in your will. “It’s important to choose someone you trust, who will be accountable and will follow the instructions in your will,” said Hoffman. “Make sure your executor is aware of the role, is willing to do it, and has a copy of your will,” he adds.
• A healthcare power of attorney and financial power of attorney are documents that let you designate a person to make medical decisions or manage your finances on your behalf if you’re unable to do so.

How to get started with estate planning.

“The best way to get started is to make a list of all your assets and their value,” explained Hoffman. This includes physical and non-physical assets you own, like cars, collections or artwork, jewelry, your home, bank accounts, stocks or retirement accounts.

Next, review your list and think about what you’d like to do with the items after you’re gone. For instance, you might want to split some of your financial assets between favorite charities or provide care or education funding for a relative.

Perhaps the toughest decisions to make are around guardianship — who would care for you, should you become incapacitated, and who would care for any minor children, should anything happen to you and to your children’s other parent. Have conversations with these people, as taking on guardianship is a serious responsibility.

Also consider your wishes for end-of-life care and, finally, think about who you would trust to handle your estate and make important decisions on your behalf.

Next, get help preparing your estate plan documents.

It might be tempting to prepare estate plan documents yourself using online software. But beware: they might not be legitimate according to the laws of the state you live in. Do your research. Some online resources do offer access to a licensed attorney in your state who can set up a teleconference review of your documents with you for an affordable fee.

Working with an estate planning attorney will ensure that you’ve got everything documented correctly and legally, which your executor and family will appreciate. An attorney will also give you detailed questions and checklists to ensure that you haven’t overlooked any issues that could arise.

Finally, store and share information.

In addition to safely storing your estate plan documents, it’s a good idea to compile a list of your accounts, the rough balance of each, and key contacts or relationship managers at each institution. Make sure that your executor will have access to the list.

Sit back and relax.

By setting aside time now to create an estate plan, you can enjoy peace of mind, knowing you’ve done everything you can to preserve your legacy, protect your heirs and make a challenging time easier for your loved ones.

You can learn more about Commerce’s Trust’s wealth management options here.