There is a common misconception that, in order to need estate planning, you need millions of dollars, various real estate, and a diverse stock portfolio. In reality, everyone needs estate planning. Your estate is simply everything that you own. This includes money, jewelry, homes, cars, and anything else that you own outright. Do you know what is going to happen to those possessions when you die? Does everyone else know exactly what to do with those possessions when you die? If not, you should consider estate planning.
How Much Does Estate Planning Cost?
The estate planning cost often depends on 1) Where You Live 2) What You Are Doing (Will, Trust, Probate) and 3) Single vs Married. As such, we developed a free estate planning cost calculator that can help you estimate your estate planning costs based on questions PERSONALIZED to your situation and your zip code.
What Is Estate Planning?
Estate planning is more than just a last will. At its core, estate planning is a legal process in which you pre-determine what will happen to your estate after your death. This doesn’t always mean you are laying out just who gets what you have. It can also mean that you give responsibilities to certain people in the event of your death or incapacitation. So, if you are a board member somewhere, or you own and run a small business, you can denote who will have those responsibilities given to them.
Ultimately, estate planning can help your family more easily transition after your death. It can lessen the confusion and division on how to distribute your assets. Estate planning also ensures that your beneficiaries receive the lowest tax hit on what you give them. Basically, estate planning sets your family up in the best way possible, regardless of what you have. A last will and testament can make your passing just that much easier for your family.
Starting Your Estate Planning
Because estate planning encompasses accounting for everything in your life that needs management, it isn’t necessarily a quick process. There are quite a few things you need to do and consider before moving forward with estate planning. Steps to get started are listed below.
Take inventory of everything you own
Before starting on designating responsibilities, it would be wise to take a total inventory of your estate. You may feel as though your estate isn’t much. But once you get started with an itemized inventory, you may be surprised by how much you are going to have to account for. There are two main categories of assets: Tangible and Intangible.
Here is a quick list of tangible items in your estate:
- Your home, land that you own, or any other form of real estate
- Vehicles such as cars, boats, RVs, motorcycles, etc.
- Any furniture you want to specifically divide
- Collectibles like coins, art, cards, jewelry, etc.
- Other personal possessions
Here is a quick list of intangible items that may be in your estate:
- Checking or savings accounts
- Stocks, bonds, mutual funds
- Life insurance
- 401(k) or IRA Accounts
- Ownership in a business
After making an itemized inventory of your estate, you will want to have their estimated value. This may mean that you need to have your estate appraised. Alternatively, you can keep a detailed account of their individual costs. You will also want to have recent statements from your financial accounts.
If you do not want to have an outside appraiser give you a valuation, then you can consider valuing the items yourself based on how your family members would appraise the items. If your goal is to divide your estate equitably, this step is incredibly important.
Make note of any outstanding debts you owe
In most cases, debt survives your death. You will want to make sure that you have made note of the debt that you have. This ensures that these things will not go unpaid after your death, giving your family more to grieve.
To be even more helpful, make sure you have documented the account numbers, debt amount, signed agreements, and contact information of the creditors to whom you are in debt. This can make it easier for your family members to keep up with your debt payments should you pass before the payments are fulfilled.
It would also be helpful to include your credit card accounts, and denote which you use most often so that they can regularly check for any charges while going through and canceling your accounts.
Memberships and Subscriptions
It may also be worth your time outlining what uncommon monthly chargers you incur and where the charge is sent. For instance, if you are a member of an organization with monthly dues the payments won’t stop until the membership is notified of your death. Similarly, subscriptions won’t be canceled in the case of your death, unless a family member takes care of it. To make sure your family is loaded with unnecessary charges, make sure you have a list of all your uncommon monthly expenses like memberships and subscriptions so your family can cancel them promptly (unless denoted otherwise by you).
Estate Planning Next Steps
Estate planning is so much more than just accounting for your assets and determining where they should go. It also includes preparing your family as best as possible for life without you. This reaches far beyond dividing your estate. Here are a few things you should have in place when estate planning:
- Life Insurance Policy- Consider how old you are. Do you have young children? Does your partner work? All of these things will factor into determining how much your life insurance policy should cover. If you are married with young children, you may need a larger policy than if you are single without kids.
- Establish a Guardian- If you do have children, it’s important that you name a guardian you expect to take your children in the event of your passing. Doing this can save your family heartache, time, and lots of money from costly court battles. Make sure you have a conversation at a minimum with the person you plan on naming as guardian so they are aware of the situation. As a side note: you may also want to outline your wishes for your children’s care. While you may trust the guardian to care for your children, if you have specific wishes (which school to attend, child-rearing ideas, etc.) then you may want to have this documented as well.
Other Directives to Consider
There is more than just life insurance to consider when planning for what happens after you pass or in the case that you are medically incapacitated. Here are a few other directives you should consider when estate planning:
- Medical Care Directive: Have someone in place who is willing, able, and aware of your wishes to make medical decisions for you in the scenario where you are unable to do so for yourself. You can outline what you want to be done to you in the case of a medical emergency (DNR, keep you on life support, etc.), but it is probably best to have someone who can carry out those wishes and make the appropriate decision.
- Financial Power of Attorney: This directive allows someone to make decisions for your financial estate should you be unable to make those decisions for yourself. You can still outline your wishes for how your financial affairs should be handled, but it is wise to designate one person to handle the responsibility.
- Power of Attorney: This directive is broader than the financial power of attorney. The individual that you assign to be your power of attorney will be able to make all decisions regarding you, your estate, and your other responsibilities. You can also create a “limited power of attorney,” in which you grant specific permission for specific actions (such as signing legal documents in your absence).
Determine Your Beneficiaries
This step is critical in estate planning. Oftentimes, families who have just lost a loved one are already in heightened emotional states. It can be even more emotionally taxing to try and determine how to equally split up the loved one’s estate and can lead to hurt feelings, drama, and family feuds. Outlining beneficiaries can help settle the emotional daze of your family while they grieve your loss.
Not only should you outline in your will how you wish for your estate to be divided, but you should also contact specific entities to check and see if they denote beneficiaries. It’s important to keep in mind that, for accounts like retirement and insurance, a listed beneficiary in their system can outweigh what is outlined in your will.
So, for instance, let’s say you are divorced and remarried. If you opened your retirement account while married to your first partner, you may have that partner listed as your beneficiary. Now let’s assume that, while married to your second partner, you created your last will and listed them as the beneficiary of your retirement account. You now have your retirement account itself with your first partner listed as the beneficiary, and your last will listing your second partner as the beneficiary. While each scenario is unique, your first partner would still have a claim to at least part — though typically all — of your retirement account after your death.
Because of this, it is important that you make sure the accounts themselves also either have no beneficiary or the same beneficiary as listed in your will. You may also want to name a contingent beneficiary.
Consider Working With a Professional
All of these things may not sound too difficult, but the details and legal red tape can be exhausting. Working with someone who is aware of your state’s tax laws, estate planning guidelines, and more can be the difference between a clean distribution and leaving behind a mess for your family to clean up.
There are many different avenues of working with professionals that you can explore. One option, if your estate is smaller or less complicated, is just using an online package. These can be inexpensive, safe, and easy to edit. The drawback is you will not be working one on one with a person who can answer any and all of your questions that may arise.
You can also ask an estate attorney for a consultation. They typically will charge a small amount for the consultation, but they will help answer the questions you have, which can help you better prepare to do it all on your own. They can also help you avoid common pitfalls like tax traps and other things you may not be thinking of.
Finally, for larger estates, or more complicated cases, you can consider hiring an estate attorney outright to get your estate planning in order for you. This is the most comprehensive way of working with a professional, but it will ensure that everything, down to the smallest detail, is accounted for. This is especially helpful for multi-million dollar estates, or scenarios where you may be leaving behind small children, a disabled partner, business issues, and other complicated cases.
Be Prepared To Make Changes
Ultimately, you can prepare to the best of your abilities, but unless you die the day after you finish planning your estate, things will change. You will need to periodically return to your estate plan and update it for the changes in your life. Have your kids grown into adults? Have you recently opened up that business you’ve been dreaming of? These things will all impact the future of your estate, and they need to be planned for.
Estate planning can be overwhelming if you’re trying to tackle it all by yourself. If you would like to talk through the process with someone, feel free to reach out or take our free estate planning cost calculator. We would love to help!