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In this Article:

• What is Estate Planning?
• Why is Estate Planning Important?
• Setting Estate Planning Goals
• Critical Components of an Estate Plan
• Will
• Financial Power of Attorney
• Health Care Directives
• Beneficiary Designations
• Appointing Guardians
• Appointing Executors
• Trusts
• Your Estate Planning Checklist
• Special Circumstances in Estate Planning
• Estate Planning Tax Considerations
• The Importance of Regular Reviews
• The Bottom Line

Regardless of your age, marital status, or the extent of assets you own, a well-thought-out estate plan is an essential component of your overall financial planning process.

To help you craft an estate plan that reflects your wishes, this guide delves into the ins and outs of estate planning, from setting goals and understanding the critical components of an estate plan to special circumstances to be aware of, steps to get started, tax considerations, and more.

What is Estate Planning?

Estate planning is the process of arranging for the management and allocation of your estate during your life and after death. Your “estate” includes everything you own—your home, car, investments, bank accounts, personal possessions, and more. As such, the main goal of an estate plan is to make sure your assets are distributed according to your wishes.

That said, estate planning goes well beyond the creation of a will. It also involves taking steps to minimize taxes, manage your finances and health care in the event of incapacity, and provide for the care of any dependents after you’re gone.

Questions about estate planning? Reach out today.

Why is Estate Planning Important?

If you’re wondering whether you need an estate plan now, the answer is likely a resounding yes. That’s because estate planning can help you:

• Protect assets for your beneficiaries. Without an estate plan, state laws will determine who inherits your assets, which might not align with your wishes. Proper planning allows you to pass on your wealth to the people you choose and can help accelerate the process as well.
• Potentially avoid probate and legal disputes. “Probate” is the legal process used to determine how an estate’s assets should be distributed—and it can be lengthy and expensive in the absence of a valid will. A well-crafted estate plan may help your heirs avoid probate and reduce the likelihood of disputes among your beneficiaries.
• Make your wishes known. Estate planning allows you to clarify your wishes regarding who should inherit your assets, what medical treatments you’d prefer, and how your loved ones should be cared for—whether that’s your children, elderly parents, or pets.
• Preserve your wealth. Effective estate planning may also enable you to reduce the amount of taxes your heirs need to pay, so that more of your wealth passes into their hands.

Setting Estate Planning Goals

When setting up your estate plan, it’s important to start by identifying your personal goals. Here are some key questions to consider:

• What are your priorities? Is it most important to you that your spouse is taken care of? Do you want to provide your children with a secure financial future? Or is your primary priority transferring your business, reducing taxes, or saving for your children’s (or grandchildren’s) education? Your personal desires will ultimately dictate the structure of your estate plan, so it’s important to clarify them in advance.
• Who do you want to benefit from your estate? An estate plan allows you to clarify who will receive your assets, whether that’s family members, friends, or charitable organizations.
• What personal arrangements would you like to make? Your estate plan forms the cornerstone of your legacy, so it should reflect your personal goals, such as supporting a charity, arranging for your business to continue in the right hands, sharing your preferences in the event of a medical emergency or incapacitation, and/or making specific requests for your funeral.

Discover more:

• Estate Planning: Start With “Why”
• Is Your Estate Plan Built to Safeguard Your Financial Legacy?

Critical Components of an Estate Plan

Once you’ve clarified your estate planning goals, it’s time to consider the key documents and arrangements that will form the basis of your estate plan. Here are some of the essentials to consider:

Will

A will is the legal document that outlines how your assets will be distributed after your death. Without a will, state law will dictate who receives what, which could lead to unintended consequences. For a will to be valid, it must meet certain legal requirements, which vary by state, so it’s wise to consult with an attorney when drafting one.

Financial Power of Attorney

A financial power of attorney (POA) allows you to designate someone to handle your financial affairs if you become unable to do so. This can include managing your bank accounts, paying your bills, and making investment decisions. Choosing the right person for this role is crucial, as they will have significant control over your finances.

Health Care Directives

Health care directives, including a living will and a medical POA, can help make sure your health care wishes are followed if you become incapacitated. A living will specifies the types of medical treatment you do or do not want, while a medical POA allows you to appoint someone to make health care decisions on your behalf.

Beneficiary Designations

Certain assets, like life insurance policies and retirement accounts, pass directly to a named beneficiary rather than being governed by your will. If your beneficiary designations don’t align with other aspects of your estate plan, conflicts can arise. This makes it important to keep your beneficiary designations up to date as your life circumstances shift, for instance, in the event of a marriage, divorce, or the birth of a child.

Appointing Guardians

If you have minor children, or children with special needs, it is vital to appoint a guardian in your will. The aim here is to ensure your children will be cared for by someone you trust. Guardianship provisions are also important to clarify any pre-existing custody arrangements to help avoid potential disputes related to the care of your children. Be sure to speak with your desired guardians before naming them in your will to make sure they’re prepared to act in this capacity.

Appointing Executors

Your executor is the person responsible for overseeing the distribution of your assets in accordance with your will. In addition to paying any outstanding debts and recovering any money owed to you, your executor is expected to file your final tax return, manage your charitable donations and specific bequests, and help make funeral arrangements. Given the importance of this role, it makes sense to choose your executor carefully and to check with them in advance to confirm their willingness to assume this responsibility.

Trusts

Trusts are legal arrangements that allow you to manage and distribute your assets in specific ways. They can provide significant control over how and when your assets are distributed to your heirs, giving you greater flexibility when it comes to tax planning, avoiding probate, and providing for your beneficiaries over time. There are several types of trusts, including:

• Revocable trusts. These can be altered or revoked during your lifetime and can help avoid probate.
• Irrevocable trusts. These cannot be changed once established but offer tax benefits and asset protection.
• Special needs trusts. These provide for a disabled beneficiary without disqualifying them from government benefits.

Discover more:

• 5 Essential Documents for Crafting a Good Estate Plan
• Things to Consider When Choosing an Executor Outside of Your Immediate Family
• When Does it Make Sense to Add a Trust to Your Estate Plan?
• Maximize Your Wealth: The Benefits of Spousal Trusts in Estate Planning
• Are Intentionally Defective Grantor Trusts Right for Your Estate Plan?
• Duties of a Trustee: What You Need to Know

Your Estate Planning Checklist

Although creating an estate plan can be complex, breaking it down into steps can make it more manageable. Here’s a checklist to help you get started:

1. Take an inventory of your assets and liabilities. List everything you own and owe. This includes real estate, vehicles, investments, bank accounts, insurance policies, and personal belongings.
2. Consult with legal and financial professionals. An estate planning attorney and financial advisor can provide valuable guidance, helping you navigate the legal and financial implications associated with creating an effective estate plan.
3. Organize your important information. Keep your estate planning documents, like your will, POAs, and trusts, in a safe, secure location. Make a list of your contacts, such as your executor, guardian, attorney, and financial advisor. Create a secure document that lists all the logins and passwords for your online accounts. You may also want to gather copies of other important documents, such as marriage or divorce certificates, property deeds, and birth certificates. Once this information is aggregated, consider providing copies to your executor or trusted family members.
4. Communicate your plan. Let your loved ones and those involved in your estate plan know your wishes and where to find important documents. Speak to the people you would like to appoint as your executors and/or guardians in advance as well, to make sure they understand their responsibilities and are prepared to act in these roles.
5. Consider family dynamics. Discussing your estate plan with your family can be emotionally challenging or even upsetting. By taking the time to express your wishes in advance, however, you can set the stage for a smooth transition of your assets while potentially addressing—or resolving—areas of potential conflict or dispute. If you’d like some guidance on how to conduct a family estate meeting, reach out to your financial advisor.

Discover more:

• The Why and How of Estate Planning
• Protect Your Legacy: The Essential Estate Planning Checklist
• How to Make an Estate Plan for Digital Assets
• 7 Considerations When Settling a Parent’s Estate
• How to Prepare for a Family Finance and Estate Meeting

Special Circumstances in Estate Planning

Estate planning isn’t a one-size-fits-all process. Your personal situation can influence your approach to your estate plan. Some special circumstances you may want to consider include:

• Estate planning for singles. If you’re single, your estate plan should address who will make decisions on your behalf if you become incapacitated and who will inherit your assets. Without a spouse to take on these roles, it’s important to clearly designated trusted individuals in your documents.
• Blended families. Blended families often face unique challenges when it comes to estate planning. Ensuring that both biological children and stepchildren are treated fairly can be tricky. A clear, well-communicated estate plan can help prevent conflicts and have your wishes respected.
• Business owners. If you own a business, succession planning should form a critical part of your estate planning process. The aim is to make sure your business can continue to operate smoothly in the event of your death or incapacity and that it transitions to the right hands, whether that’s family members, partners, employees, or outside buyers.
• Charitable giving. If you’re passionate about a particular cause, you can include charitable giving as part of your estate plan. To maximize your philanthropic impact, you may want to consider setting up a charitable remainder trust, designating a portion of your assets to go to a nonprofit organization, or contributing to donor advised funds. By discussing your intent with your financial advisor, you can leave a lasting legacy.

Discover more:

• 3 Crucial Estate Planning Considerations for Singles
• 7 LGBTQ Estate Planning Concerns You Haven’t Considered
• Maximize Your Impact: Charitable Giving as Part of Wealth Transfer
• Donor-Advised Funds: Turbocharge Your Charitable Giving Strategy
• Preserving the Stretch IRA for Heirs
• When a Roth Conversion is Right for Your Estate—And When it Isn’t

Estate Planning Tax Considerations

Taxes can have a significant impact on your estate, potentially reducing the amount your heirs receive. This makes it important to understand what taxes your estate may face. The federal estate tax, for instance, applies to estates exceeding a certain value, while inheritance taxes are levied by some states on the beneficiaries of an estate. To help minimize these taxes, advance planning is important.

Other strategies may also help you reduce your estate’s tax burden, such as gifting assets during your lifetime, setting up trusts, and purchasing life insurance. In fact, beyond providing for your loved ones, life insurance can give your heirs the liquidity they need to pay estate taxes, so they won’t have to cover those costs themselves.

Discover more:

• Life Insurance as Part of Your Estate Plan
• Avoiding Estate Taxes on a Life Insurance Policy
• Discover How to Maximize Estate Tax Savings With a Grantor Retained Annuity Trust (GRAT)
• Federal Estate Tax Exemption to be Halved in 2026: Here’s What You Need to Know
• How to Avoid Estate Taxes With an Irrevocable Life Insurance Trust

The Importance of Regular Reviews

Your estate plan isn’t something you can set and forget. As your life circumstances change—such as getting married, divorced, having children, or acquiring significant assets—your estate plan should be updated to reflect these changes. Other major events—like the death of a beneficiary, moving to a different jurisdiction, retirement, or changes in the law—may also trigger the need to review and potentially revise your estate plan. A good estate plan should be flexible enough to accommodate both your life shifts and legal changes. By reviewing it regularly, you can make sure it remains effective.

Discover more:

• How Often Should I Review My Estate Plan?

The Bottom Line

Given all the elements involved, estate planning may seem overwhelming—but you don’t have to go it alone. A financial advisor can help you catalogue your assets and liabilities, think through the sufficiency of your life insurance, and discuss other estate planning priorities with you. If you’d like to explore how careful planning and the right guidance can help protect your assets and your loved ones, reach out to your financial advisor today.

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

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