Key Takeaways

  1. Estate planning is essential for everyone and there are three simple documents you need to protect your health, your wealth, and your family
  2. A will is critical to making sure your savings, investments, home, and other assets are protected, managed, and distributed to the right individuals
  3. A durable, or financial, power of attorney ensures someone you trust can handle your financial affairs in the event you are unable to do so
  4. Advance medical directives name someone to make critical healthcare decisions if you experience a medical emergency or are incapacitated
  5. Your estate plan needs to evolve as your life changes – get it right and you’ll protect what matters most and give your family peace of mind

A common misconception of estate planning is that it’s a process reserved for the rich and famous. The truth is that while you may not be planning for a $100 million estate, what you are planning for is far more important – a spouse or partner, a child, a business with employees, and even the community in which you live.

What Estate Planning Is Really All About

An estate consists of a person’s money (bank accounts, investments, retirement plans), property (car, home, and personal effects), and other assets (like a business). Estate planning is the process of taking proactive steps to protect these items and to ensure that someone can make critical medical decisions for you should you become incapacitated or pass away. It’s about making sure the people you care about most are taken care of in the event something happens to you.

Estate planning can be a challenging topic to discuss, but it’s a critical step in the broader financial planning process to take care of everything, and everyone, you have worked so hard for.

Why Estate Planning Is Important

At its core, estate planning helps you answer one critical question, “If something happens to me, will the people I care about be OK?” The peace of mind that comes with a proper estate plan is priceless.

Here’s what you need to know about the estate planning process and the three essential documents everyone needs.

Create a Will

The cornerstone of any estate planning process is a will. It states how your money, your property, and your other assets will be distributed should you pass away. Without a will, your family will have no control, and the courts will determine who receives your assets based upon state law.

When you create a will, a couple of things will happen. First, you will name someone – called an executor or personal representative –  to manage or “settle” your estate. They will be in charge of filing the will with the courts in your home state in a process called probate. If you have young children, you can name someone to care for them which is known as naming a guardian. If you are married, it is typically the surviving spouse. If you don’t name someone, the court can decide for you.

Knowing what a will does not cover is just as important as what it does. Jointly owned accounts or assets, like a bank account or a home, pass to the surviving owner. Accounts that have a beneficiary named – a 401(k), IRA, or Roth IRA – or a life insurance policy will pay to the beneficiary. In these instances, your will has no impact on where the money goes.

Keep in mind there is a lot more to creating a will, but this should get you started. It’s important to work with an estate planning attorney to get the right advice.

Set Up a Power of Attorney for Your Finances

The second key document is a durable (or financial) power of attorney (FPOA). With a power of attorney, you name someone – called an agent – to handle your financial matters should you become incapacitated. The FPOA is limited to financial affairs. The agent will have the ability to handle everyday expenses – paying bills, debt payments, investment decisions, filing taxes, amongst other things.

There are two types of FPOAs to be aware of. The first is effective the day you sign the document, and your agent can use it even if you are still capable of making financial decisions. The second is called a “springing power”. It “springs” or goes into effect after an event that causes disability or incapacity.

Establish Advance Medical Directives

When it comes to your healthcare, the documents you need can vary from state to state. However, all documents are referred to as advance medical directives. In some states, the advance directives are part of one document. In others, there could be two. Regardless of the state requirements, here are two issues you need to address:

  • Healthcare Power of Attorney (HCPOA) or healthcare proxy: Like a financial power of attorney, someone is named – an agent – to act on your behalf for healthcare decisions if you cannot make them on your own. Without an HCPOA, medical facilities have the right to make decisions for you instead of listening to a family member. If you have one, your agent can present the document and be in control of your medical care.
  • A Living will: The living will allows you to make decisions regarding end-of-life medical treatment. If you are facing a terminal illness or injury, and are unable to express your desires to the medical staff, your living will provides instructions as to whether or not you want life-sustaining medical care.

Estate Planning Is an Evolving Process

Planning for your estate and the people you love is a fluid and dynamic process. As you navigate life – marriage, children, divorce, or even a death in the family – you need to revisit your plan. Even something like moving to a new state can create the need for new documents.

An estate plan is an essential part of the financial planning process for everyone, but it’s not just about planning for your money. It’s about protecting what matters most. Done right, you’ll create peace of mind knowing that your health, your wealth, and the people you care about will be OK should the unexpected occur.

Estate planning can be a confusing process, but it doesn’t have to be. A CFP® Professional at Facet Wealth can help you create a personalized financial plan and navigate the estate planning process with greater clarity and confidence. Protect what matters most and schedule a free introductory call today.