Estate Planning Basics – The Minimum You Need to Ensure Your Wishes Are Carried Out

After my aunt—who took care of her elderly mother and disabled sister—passed away suddenly at 52, our entire family scrambled to try to find the paperwork and insurance information that specified what happened to her estate. A death in the family is a stressful time, which is compounded when you add in financial uncertainty.

It didn’t occur to my aunt that she would need to have her estate set up so young, but you never know what life will bring. Because of this experience, I’ve learned that one of the greatest gifts you can give to your loved ones is a well-planned out estate.

Unfortunately, even with my family experience fresh in my mind and the recent birth of my son, finding the time to plan out my estate has not been easy. Day-to-day life always seems to get in the way. But getting the bare bones of your estate set up will take less time and money than you think. Here’s a guide to the bare minimum you need to make sure that your assets and family are taken care of:

1. A Will

I was horrified to learn that if my husband and I were to die intestate while our son was still a minor, the state would decide where he went, despite the fact that we have already discussed our plans with family. We needed to have a will to protect him. We learned that setting up a will was a very quick and easy process once we found a lawyer. We received a recommendation from our financial adviser, but you can also search here for will and probate lawyers in your area.

Writing our will began with a phone call wherein our lawyer determined our estate was valued at less than $5 million (which I assume meant she could use a simpler will template), and who our son’s custodian and our will’s executors would be.

After that 15-minute phone call, our lawyer emailed us a pdf of the will that same day to check for typos or other issues. We signed the will in her office two days later, and my husband and I felt much more secure. The entire process took about an hour of our time (including the original phone call) and cost less than $200.

In the future, I hope to rewrite our wills to be more specific about the disbursement of our assets, but for right now, this is enough to protect us if the unthinkable happens.

2. A Living Will

No matter your age, it’s important to put some thought into end-of-life planning. While few of us like to think of something as unpleasant as death, you need to have a way for your wishes to be carried out, whether they are financial wishes or other wishes related to your end of life.

This issue was brought to mind with the recent story of the nurse who stood by, refusing to give CPR, as an elderly resident in a senior home died. Luckily for the nurse (and the senior home), so far the deceased woman’s family insists that she wouldn’t have wanted efforts made on her behalf. So that means that the nurse isn’t likely to face the financial consequences that might come with legal action against her.

Even though the elderly woman didn’t have an “official” statement filed somewhere, her family seemed to know her wishes. Does your family know your wishes? And do you know how you want things to play out in your end-of-life planning?

It didn’t occur to me to ask for a living will in addition to our typical will, but our lawyer included it since it is a common and necessary supplement to your estate planning. Without a living will in place, your wishes could be disregarded should you fall into a coma and need medical intervention to survive. This could potentially have serious consequences for your family if they disagree about what you would want and if you do not have the money for extended medical care.

The lawyer who draws up your will should also be able to create a living will for you.

Your will can provide your survivors with information about how you want your financial assets distributed, as well as instruct them about other matters. You also need to consider other estate planning basics, including:

• Living will
• Health care proxy
• Power of attorney
• Statement of your position on resuscitation or other efforts to extend your life
• What happens to Debt when you die?

You also want to make sure that you have adequate life insurance for your family so that they are able to make up for the lost income after your demise.

It’s never fun to sit down and think about what might happen or to face the possibility of your own death (or the possibility of your life partner’s death). However, you do need to make those efforts. You and your life partner need to sit down and figure out what you want to have to happen.

Make it Official – and Keep your Living Will, Health Care Proxy, or POA with Your Important Papers

In many cases, it’s not enough to simply let others know what you want to happen. You need to make it official, with the proper documents and signed statements. This is something that my husband and I need to take as a step.

Part of your planning should include whether you want to be an organ donor or if you want your body to be donated to science. These are difficult topics, and not everyone is comfortable discussing them, let alone making the decision on behalf of someone else.

3. Guardianship of Your Children

If you have minor children, you will need to consider who will take care of them if both parents die or are incapacitated and unable to take care of the children.

Not only should you let your wishes be known, but you should also make it “official” through a will and other documentation. We’ve written a few things down, but it’s not exactly the same thing. Part of your decision should include how the children will be cared for, and how much money you should leave the guardians of your children. Keep in mind Social Security Survivor Benefits for children may provide a monthly payment to your children until age 18 (sometimes later) should you predecease them.

An estate lawyer can help you draw this up in your will or help create a trust that will provide for your children in the event both parents are unable to care for or provide for the children.

So it’s time for us to sit down, have an official talk about the end of life (and the possibility that it might come suddenly, at any time, even though we’re still young), and then draw up some documents that make it clear to everyone around us what should happen if we become incapacitated, or if we die.

4. Sufficient Life Insurance

It can be easy to forget how much your life has changed after marriage, children, and a higher-paying career. Many of us continue to live with the same bare minimum or no life insurance we had when we started our careers. But life insurance is an important part of making certain that your loved ones are taken care of – so you should make sure you have enough.

If you’re intimidated by life insurance, start with the insurance offered through your employer. Your HR department should be able to offer you some counseling (or phone numbers where your questions can be answered) as to what options are available to you. Just keep in mind that life insurance through an employer may not be portable, so you may wish to have a separate life insurance policy in the event you change jobs.

It’s also important to remember that stay-at-home parents should also be covered by life insurance. Just because they are not bringing in an income does not mean that they don’t need insurance. That means you will also need to see an insurance professional or search for a policy for yourself if you or your spouse doesn’t work outside the home.

In addition to the life insurance offered to my husband through his workplace, we are also setting up insurance for both of us through our financial adviser.

5. Creating a Financial Continuation Plan – Financial Security For Your Family

Your will, living will, plan of guardianship, and life insurance policies take care of many of the big-picture estate planning needs. But it’s also a good idea to have a financial continuation plan to help the executor of your estate manage their legal obligations while settling your estate.

Everyone should write an “If I Die Letter” which informs the survivors:

1. Who to contact
2. Where the money is
3. What to do with the money (this is known as “The Continuation Plan”)

This letter should include some or all of the following:

1. Who to contact. This list should include your doctors, lawyers, financial advisors, insurance agents, religious advisors, closest friends and family, business partners, and anyone else who has a personal or legal interest.

2. Where is the money? Now is not the time to hide money from your spouse. It’s a good idea to have a list of all financial account numbers, contact names, and passwords for each institution. It’s a good idea to give a brief explanation of each account, if necessary. This can have important legal and tax consequences for accounts such as investments, retirement accounts, insurance policies, etc.

While you are at it, take steps now to ensure that your survivors can get to the money in the event of your untimely demise.  You may want to use trusts or powers of attorney for this.  Talk to an attorney before taking action to understand your options, and any legal requirements or limitations.

3. What to do with the money (The “Continuation plan”). This is the most important part of the letter.  This will help your survivors plan for their future without you. This is especially important if you manage most or all of the finances. You want to ensure your family will be taken care of, both now and in the future. Hopefully, your estate will have sufficient funds with its current assets, plus any life insurance policy proceeds.

If you do the financial planning, be sure to direct your survivors to a competent financial planner and/or tax professional to help them with this transition, transferring any funds, and any legal or tax consequences they may incur.

6. Will You Leave an Inheritance for Your Children?

A recent article on CNN Money says that American retirees expect to leave an average of $177,000 in inheritance for their heirs. Other than wondering how much millionaires and billionaires are skewing this average (seriously, I don’t know anyone who’s going to wind up with $177,000 from their parents or grandparents), I’m wondering whether or not it’s really such a great idea to plan to leave an inheritance for your posterity.

Why Is There Money for an Inheritance?

Part of the reason that many Americans end up leaving money behind for their posterity has to do with the fact that we are conditioned to save up as much as possible to fund our own retirements. So, if you save up what you can so that you are sure not to outlive your money, it makes sense that there is likely to be some left over for your children and grandchildren.

In fact, you might be relying on money that you think will be left over when your own parents die. According to CNN Money, two-thirds of those in the United States claim that an inheritance will partly fund their own retirements. It seems only natural that you will pass on money to your own heirs over time as well.

For some, though, there is a conscious effort to build up an inheritance for those who come after. Instead of trying to make sure that they have what they need (and then some), and then letting the chips fall where they may when it comes to leaving money for their heirs, there are those who hoard as much as they can so that their beneficiaries end up with as much money as possible.

Re-Thinking the Inheritance

In some case, though, it makes sense to re-think the idea of the inheritance. First of all, you might not want to try to amass a pile of money that you will never enjoy. While my husband and I are good about contributing to our retirement efforts, we don’t get too crazy about it. After all, we want to enjoy some of our money now, in addition to saving for the future. What good is a huge retirement account if you’re too old to enjoy it?

Another reason to re-think the huge inheritance for your heirs is the reality of taxes. A big inheritance can mean that your children and grandchildren lose a lot of value to estate taxes and inheritance taxes—state as well as federal in some cases. Instead of trying to build up that huge stash, some choose to give money now. You can use your gift tax exclusion to give gifts tax-free, reducing the size of your estate and creating a situation in which you can watch your heirs enjoy their inheritance, rather than being insensible of it.

You can also re-arrange your estate plan with the help of vehicles like trusts that can help you smoothly pass your assets while reducing tax liability. This is where a basic estate plan and a will are essential.

A “traditional” inheritance isn’t always the best choice. Think about your situation, your goals, and what you really want to teach your children and grandchildren. Then, make your decisions based on what is likely to be most beneficial in the long run.

The Bottom Line

Getting these three parts of our estate set up was relatively quick, inexpensive, and painless. I know that we are not done in terms of making sure that our son and our families are protected, but we have the bare minimum in place for our estate. Even if you don’t have much time or money, it’s worth it to have that kind of peace of mind.

Your estate planning needs may be more complicated. If so, you may wish to hire a  lawyer that specializes in estate planning. It may also be worth consulting with a tax professional or financial planner to understand the potential tax consequences of your estate and investments. Depending on the complexity of your estate, you may want to look into a survivorship life insurance policy or a strategy such as placing a life insurance policy inside a trust to help with potential estate taxes or other estate planning needs.

About Post Author

Emily Guy Birken

Emily Guy Birken Plutus Award-winning freelance writer in the financial sphere. Her varied career combined with her background in education helps her make complex financial topics relatable. She’s also the co-author of Stacked and featured on the Stacking Benjamins podcast.

See author's posts