Whether or not you realize it, you have an estate. You might be thinking of estate in terms of the Queen of England, but it’s actually much more practical than that. Sure, she has an estate — but you do, too. Your estate is made up of everything you own: your car, home, real estate, checking and savings accounts, investments, life insurance, furniture, your personal possessions, etc. While your estate might look different from the Queen’s, you have one thing in common — neither one of you can take your estate with you when you die.
Estate planning is the act of leaving a detailed instructional plan about how you want your assets to be distributed after you pass. Women, in particular, tend to overlook this aspect of their financial affairs, according to financial guru Suze Orman. This mistake can lead to unanticipated financial burdens for their beneficiares, including their children.
Your estate plan should include all the following:
- Your will. This is a legal document that explains who should receive which of your assets. It also allows you to name guardians for your dependent children — which is crucial because the courts will decide what happens with your assets and your children if you don’t have a will in place. You can also name an executor, the person who will be in charge of your estate, which includes distributing your property, filing tax returns, and processing claims for creditors.
- Power of attorney. When you name someone to have power of attorney for you, this person has the authority to manage your financial affairs if you are unable to do so. It might be difficult to think about, but it is important.
- A living will. This is a statement of your wishes about what kind of life-sustaining medical intervention you want — or don’t want — in the event that you become unable to communicate.
- Healthcare proxy. This authorizes someone you trust to make your medical decisions for you on your behalf. Together, a living will and a healthcare proxy make up what’s called an “advanced health care directive.”
- Trust. For those who are concerned about how assets will be distributed, it might make sense to put a trust in place. A trust is a legal entity that creates conditions by which assets are distributed — not just upon your death but also while you are alive. Under certain conditions, a trust can name one or more individuals who will step into your shoes and handle your personal, financial and/or business affairs in the event you are unable to do so. A trust can also help minimize gift and estate taxes. Finally, a trust creates a cloak of privacy around your estate and its assets. In contrast, a will, if it is contested, becomes viewable by the courts and therefore part of the public record.
- (Term) life insurance proceeds. Money from your estate — whether from bank accounts, trust assets, or property — may not be immediately available to your family and children to pay for their needs. However, mortgage payments, estate taxes, and school tuition could be due right away, or at least before the assets are distributed. Life insurance can provide money to your beneficiaries shortly after your death. Beware, though — if you have minor children and simply name them as beneficiaries on the policy, that money will be frozen until they turn 18. To make the funds accessible quickly, you must set up a trust to be the beneficiary, with instructions about how the money is to be used.
The best way to protect your assets, and ensure that your family is properly cared for, is to take the time to create an estate plan. While it’s not necessarily an easy thing to do, it is a necessity and can offer peace of mind for you and those you love.