What is estate planning and who should do it?

What is estate planning?

Estate planning refers to the process of deciding and legally designating who will inherit your assets in case of your incapacitation or death. The objective of estate planning is to ensure that the proper parties receive assets with the minimum incurrence of estate taxes, gift taxes, and other taxes. Estate planning can be done with the aid of a financial advisor or attorney, or it can be done on your own.

Turn data into insights with Excel

Make better decisions backed by data and insights

Learn more

A person’s estate includes every object and asset that you own. This includes real estate, cars, valuables like jewelry, stocks, bonds, retirement savings, bank accounts, life insurance, and other objects. Even joint bank accounts are considered part of your estate and their destination in the event of decapacitation or death must be designated.

There are a few important steps that make up estate planning. These tasks include the following:

• Creating a will
• Assigning power of attorney
• Designating a healthcare proxy
• Establishing trusts
• Designating guardians for any living dependents
• Designating beneficiaries on life insurance and retirement plans
• Preparing for estate taxes
• Funeral arrangements

How to create an estate plan

Estate planning is an ongoing process that is constantly updated and adjusted as assets are acquired and dependents change. Taking time to reassess and update your plan every few months, whether on your own or with the help of a financial advisor, is a smart way to make sure that all assets are accounted for in the event of an unexpected event.

Step 1. Inventory your assets.

Identify all of your concrete, or tangible, assets. This includes the following:

• Homes
• Land
• Other real estate
• Cars
• Motorcycles
• Boats
• Other vehicles
• Collectable items like coins, art, and antiques

Next, identify all of your intangible assets. Intangible assets can include the following:

• Bank accounts, including checking and savings
• Life insurance policies
• Retirement plans
• Stocks, bonds, and mutual funds
• Health savings accounts (HSAs)
• Business ownership or investments

Step 2: Estimate value.

Once both your tangible and intangible assets have been tallied, estimate their value. If you need help valuating real estate, you can use recent appraisals of your home to make an estimate. Keep track of monthly or quarterly statements from financial accounts—these will come in handy when it comes to estimating value for intangible assets.

Step 3: Plan for your dependents’ needs.

Deciding for what will happen to your assets and how your dependents will be taken care of is the next key step in estate planning. Take the following situations into account and decide as needed:

• If you have children, designate a guardian for them in your will. You can also designate a backup guardian.
• In the same vein, designate your wishes for how your children will be cared for. State these wishes in your will to avoid confusion and, worst case scenario, a court case.
• Revisit your life insurance policy and make sure you have enough life insurance to cover your dependents needs. The amount of life insurance you need will vary based on factors like whether you’re married, whether you have children, and what the needs of these dependents are.

Step 3: Decide on directives.

A directive is a set of instructions to be carried out when you are unable to make decisions yourself. This includes medical care directives and financial power of attorney. It’s important to provide instructions on who will take over making medical care decisions and financial decisions for you and your estate when you are incapacitated or after your death to ensure that your wishes and plan are carried out.

Step 4: Designate beneficiaries.

Set up beneficiaries for your insurance and retirements accounts when possible, to ensure that the right people receive your assets. You can also designate backup—or contingent—beneficiaries.

Getting your estate in order early and reviewing it often is the best way to ensure that your dependents and beneficiaries get what they need, and that your wishes are carried out in the event of your incapacitation or death. DIY estate planning is possible but can be complicated—it may be worthwhile to enlist the help of a financial advisor to help account for all of your assets.