Estate Planning 101 – Everything You Need to Know About Getting Your Affairs in Order 

Written by Emily Boothroyd, JD, CFP®, CPWA®, Wealth Manager, Partner

What is estate planning?  

Estate planning is the process of creating a plan for the distribution of your assets at your death, and a plan for your care in the event you are no longer able to manage your own affairs. It can be as simple as naming beneficiaries on a retirement or bank account or as complex as a system of trust documents.  Estate plans can be customized to specifically address your individual needs and concerns, and are applicable to all sizes of estates, regardless of your net worth.  

Why does estate planning matter 

Estate planning can prevent administrative headaches and family heartache by alleviating any confusion about where you’d like your assets to pass and how you’d like your affairs to be handled in the future.  In fact, 35% of adults in the U.S. say that they or someone they know has experienced familial conflicts due to not having an estate plan or will in place. By making clear plans for who you’d like to be in a fiduciary role (i.e., your Executor, Trustee or Healthcare Agent), and who you’d like to receive your assets, you eliminate confusion and reduce arguments within your own family.  You also reduce the amount of time that is required to organize and distribute the estate, which typically reduces the amount of costs of administration.  

Remember that no planning is still planning – without beneficiary designations or estate planning documents, your estate will pass to the probate court to determine the distribution of the assets, costing time and money for your loved ones.  

What are the basic documents most people will need?  

Advanced Directives are a set of documents that govern your healthcare and the management of your assets in the event that you fall ill or are incapacitated (think – traumatic brain injury or dementia).  All adults, regardless of financial status, should have a set of these basic documents.  Documents may include:  

  1. The Power of Attorney allows your Attorney in Fact (a person you appoint to the role) to act as you in a variety of circumstances.  This could include a situation like allowing a spouse or loved one to sign real estate documents on your behalf while you are away, or to withdraw funds from your bank account to pay an unexpected bill while you are on vacation.  It is a very powerful document, and while your attorney in fact can be sued for breach of fiduciary duty if they don’t act in your best interest, it’s best to appoint someone you trust.   
  1. Health Care Proxy or Health Care Power of Attorney enables someone to make medical decisions on your behalf if you are unable to do so.  This could be a situation where you have had a stroke and quick decisions must be made about your care, or a variety of other healthcare-related situations.  Your healthcare proxy or agent will make decisions on your behalf.  
  1. Designation of Conservator/Guardian. If you are deemed incapacitated or unable to act for yourself, a conservatorship or guardianship may become necessary to prevent you from making poor healthcare or finance-related decisions. This may occur when a mental health issue or dementia arises.  Your conservator or guardian will make healthcare and/or financial decisions on your behalf – you will be precluded from making your own decisions.  
  1. Living Will. In the event that you are very close to death (usually 24-48 hours), and unable to communicate, a Living Will spells out your desires for your end-of-life care.  For example, you can determine whether you’d like to receive artificial nutrition or hydration, maximum pain relief, and whether you’d like to remain on life support.  
  1. A Will is a testamentary document, meaning that it takes place at death.  A Will can be amended or revoked during lifetime, but is irrevocable after death.  A Will outlines the distribution of assets at death, including tangible personal property (i.e., furniture, jewelry, collectibles, cars), real estate, and other assets that do not have specified beneficiaries (more on that below).  A Will can also provide guardianship appointments for minor children, and specify caretakers for animals.  It is a broad document that is intended to provide an outline for beneficiaries at death.  The person overseeing the proper execution of this document is called an Executor. A Will can also be a “pourover Will”, which means that the assets noted in the Will are distributed to a Trust for further management.  
  1. Often referred to as a Will proxy, a Revocable Trust is a living trust created during lifetime that governs the management of assets within the trust both during lifetime and at death.  The person creating this document is called the Grantor, and the person executing the Grantor’s wishes is called a Trustee.  Often, a Grantor will create a Revocable Trust and act as Trustee until their death.  The Revocable Trust can be amended or revoked any time up until death. At death, a Successor Trustee will be appointed and the trust becomes irrevocable. Revocable Trusts are often used by people who are seeking to streamline the probate process, allow for continued management and privacy during lifetime (and in the event of incapacity), and at death.  A Revocable Trust does not, on its own, save money on estate taxes.  It is a tool for simplification, continuity, and privacy.  
  1. Irrevocable Trusts can be living trusts (created and managed during your lifetime), or testamentary trusts.  A commonly used Irrevocable Trust is an Irrevocable Life Insurance Trust, which is used to shelter life insurance proceeds from being included in a grantor’s estate at death and to allow for continued trust management for beneficiaries.  Irrevocable trusts are often used in tax planning, and individual guidance from a skilled attorney is recommended.  

What is a Specified Beneficiary and a Beneficiary Audit 

Specified Beneficiaries, also called Designated Beneficiaries, are people (or trusts) that are clearly labeled on an existing asset. Most retirement accounts, including 401(k) and 403(b) accounts have primary and contingent beneficiaries that are named.  Most commonly, retirement owners appoint their spouses as primary beneficiaries, and children as contingent beneficiaries. Other examples of accounts or assets that typically have Specified Beneficiaries include life insurance policies, joint bank accounts, and real estate assets held jointly with others. This can include transfer on death accounts.  

Specified Beneficiaries override any language in your Will or other estate planning documents, so it’s particularly important to make sure you conduct a regular review, or Beneficiary Audit of your accounts to make sure your beneficiary designations are in keeping with your wishes.  

How Can I Find a Good Attorney?  

Most financial advisors have a network of skilled professionals who can guide you. Seeking an attorney who focuses primarily on estate planning and administration is a start, as the area can be complex and requires regular attention to the changing legislative landscape. It’s also imperative to find an attorney who is comfortable working with your financial management team. Perhaps most importantly, focus on fit: does the attorney listen attentively to your concerns and needs, and address them directly in your conversations? If you’d like a list of resources for an attorney, reach out to your advisor and we would be happy to make an introduction.  

How Often Should I Update My Plan?  

Updates are necessary whenever life changes occur. For example, a new child or marriage, a move to a new state, or a material change in financial or health circumstances should trigger an estate plan review and possible update.  Confirming your estate plan summary with your advisor annually is a great way to check in on your situation to see whether you’d benefit from a review or update with your attorney.  

Next Steps  

Less than 20% of those 55 and older have the recommended essentials of a Will, and Healthcare Directive, and a Durable Power of Attorney. While preparing for your own death can be scary to think about, it is one of the most important things you can do for yourself and your family. During your next review with your financial advisor, be sure to discuss your wishes for incapacity and end of life. Together, you can identify your estate planning values, goals, and the best people for the positions within your documents before you meet with your attorney.   

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.