What Is An Estate Plan? 6 Key Elements

One of the most underappreciated parts of reviewing your financial life has to do with things that we’d rather not think about.  After all, how many of us actually want to contemplate our death or significant disability.

In addition to that, as humans we tend to always say to ourselves, even if subconsciously, “Yeah, that terrible accident happened to them, but that won’t happen to me.” Or, “That cancer diagnosis happened to them, but it won’t to me.”  And on and on.   

But boy, unless you have a crystal ball (and by the way – can I borrow it?), how can you say with any confidence that you know how long you’ll live, or the health that you’ll have for the rest of your life.

God willing, you and I both have decades to go.  But we simply don’t know!

And that’s where your estate plan comes into place.  

What Your Estate Plan Does For You

Your estate plan will do two main things for you: 

1.  It will direct who gets your assets, and when they get them.  

2.  It will also appoint people to make decisions for you on your behalf if you cannot make those decisions on your own.  

There is more to it than that, but those are two hugely essential points.

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

Let’s go into these in a bit more detail.  

1.  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 as 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.

2.  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 commonly 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.

3.  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 and completes other tasks for you. 

Oftentimes, the executor, trustee, and the financial power of attorney are the same person simply because things go more smoothly when these three roles work well together. That said, they do not need to be the same person. 

4.  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.

5.  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.)

6.  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 were to occur, your family would be taken care of. 

And what’s more, that your wishes are carried out. Creating an estate plan ensures you make the important decisions, versus a probate judge, or the wrong person. 

If you’re interested in creating your own Estate Plan, in addition to your financial plan, I am excited to announce a new service that I am able to offer where we will work with a national Estate Planning firm to create your estate plan that will be customized by you and tailored to your circumstances.

To get started, simply go to StartMyRetirement.US and schedule a time for us to create your 1 page retirement plan.

Big disclaimer: 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.  Also, nothing in this blog post is legal advice, and I highly recommend that you speak with an estate planner/attorney to answer your specific questions.