Estate planning makes sure your wishes are followed after you’re gone. It reduces taxes, avoids legal battles, and secures your family’s future. This article will tell you why, walk you through the basics, and give insights into the estate planning survey we performed in 2024.
Questions our viewers answered include:
- “Have you created an estate plan?
- “What is your main reason for creating an estate plan?”
- “Which estate planning documents did you include?”
- “Have you discussed your estate plan with your family?”
- “Did you include your login credentials for your financial accounts?”
- And more…
See the results below!
Key Takeaways
- Estate planning is important for managing and protecting assets, avoiding probate, reducing estate taxes and honoring healthcare wishes.
- Key documents in estate planning are a last will and testament, living will and power of attorney which all work together to make sure your wishes are carried out and loved ones are taken care of.
- Estate planning is important for loved ones, appointing guardians for minor children, providing for dependents and pets and reducing probate costs and estate taxes.
Estate Planning Basics
Estate planning is the foundation of managing and protecting your assets. It’s creating a series of legal documents that outline how your finances, property, and personal belongings will be handled after you’re gone. The estate planning process ensures your final decisions are carried out exactly as you want, gives you control over asset distribution, and peace of mind for you and your loved ones.
Despite common myths, anyone with personal belongings, money, or assets needs an estate plan. But how many people have really made an estate plan? According to our survey, 41.7% have created an estate plan, 1.4% are in progress, and 56.9% have not created an estate plan. That means over 50% of users responding to our survey may miss out on:
- Avoiding probate which can be lengthy and costly
- Reducing estate taxes
- Protecting assets from creditors
- Providing for minor children or dependents
- Having your healthcare wishes carried out through a living will or healthcare power of attorney
What is an Estate Plan
An estate plan is more than a will, it’s a strategic plan for your affairs. It includes:
- your home
- real estate
- car
- investments
- life insurance policies
- personal belongings
- bank accounts
A will outlines how your money and property are distributed; an estate plan is a bigger plan for your belongings, your loved ones, and even yourself. Despite a plethora of information, many people still don’t understand what an estate plan covers, even after having one made!
From the group we surveyed, on average, they said that their confidence in their understanding of their own estate planning was 2.3 (1 = very low confidence, 5 = very high confidence).
Without a will, state laws will decide how your assets are distributed and may not include friends or charities you care about. Estate planning makes your wishes known, dictates how assets are distributed, who gets them and when they get them.
Estate Planning Documents
Creating a full estate plan involves several key legal documents, each serving a purpose. The most common are:
- Last will and testament: This important document outlines how your belongings will be distributed and who will take care of your minor children, dependents and pets.
- Living will: This document outlines your wishes for medical treatment and end of life care if you become incapacitated and unable to communicate your wishes.
- Power of attorney: This document gives someone the authority to make legal and financial decisions for you if you can’t do it yourself.
A living will is just as important as it outlines your wishes for life-sustaining medical treatment. It prevents family members from making decisions without your input and should be updated every 3-5 years. Also, a testamentary trust can be included in your will to fund a child’s education or care for an elderly parent, so their needs are met.
So, what documents did our respondents have in their estate planning? The most common was a will at 40.3%, followed by Power of Attorney at 37.3%, and Trust at 34.7%. Check out the results below!
Common Reason for Creating an Estate Plan
Protecting Your Loved Ones
Estate planning is all about protecting your loved ones. Without an estate plan your immediate family will not be included in the asset distribution. By making your wishes known you can ensure your family is taken care of and their financial security is protected.
Our survey results suggest that “protecting my family” is by far the most important reason an individual creates an estate plan. Protecting my family’s future was the most common reason at 50%, followed by avoiding probate at 27.8%
Naming Guardians for Minor Children
For parents, naming guardians for their minor children is a key part of estate planning. This means your children are taken care of as you want, not left to the court to decide who will take care of them. After the birth of a child update your estate plan to include the appointment of a guardian in your will. When choosing a guardian, consider their values, financial situation, and ability to care for your children.
Does your close family know how your estate plan is set up? Hopefully, whomever you’ve named as your children’s guardian knows, but what about your children or other family members? As noted from our survey results, this can be a difficult matter to discuss. Only 27.8% of those surveyed said that their family is fully aware of their estate plan.
Providing for Dependents and Pets
Estate planning goes beyond human relatives, it includes pets and other dependents too. Including provisions for pets in your will means they will be given to a trusted caretaker along with funds for their care. Pet trusts can be set up to leave money specifically for the care of your pets, so the caretaker has a legal obligation to use the funds for that purpose.
Dependents such as elderly parents or disabled family members are just as important. Funding for their care and naming a trusted caretaker will bring peace of mind and security for your loved ones. Naming a contingent beneficiary is a key part of this process.
Avoiding Probate Court
One of the biggest benefits of estate planning is avoiding probate court, notorious for its long and costly process. Reducing probate will reduce expenses, delays and loss of privacy.
A smoother estate transition is possible by keeping beneficiary forms up to date and placing assets in trusts.
Probate Expenses
Probate can cost a lot, filing fees, attorney fees and probate bonds can cost around 0.5% of the total estate. But there are ways to reduce these costs. Small estates can use expedited probate processes and revocable living trusts can avoid probate altogether. Payable on death registrations and joint ownership for properties and accounts can transfer assets directly to the surviving owner and avoid probate.
Privacy
Privacy is another reason to avoid probate court. Probate is public, estate details are open to everyone. By avoiding probate you can keep your personal and financial affairs private. A trust is a way to distribute assets privately, trusts are not part of the public probate records.
Managing Financial Affairs Through Estate Planning
According to our survey, 46% said they didn't have any estate planning documents in place.
Financial Power of Attorney
Granting someone the authority to make financial decisions for you if you become incapacitated is key. A financial power of attorney can manage assets during physical or mental incapacitation so your financial needs are met. This legal document allows the designated person to pay bills, handle property transactions and manage other financial affairs for you.
Trust Assets and Retirement Accounts
Setting up trusts is a way to manage how assets are distributed and potentially reduce estate tax. Trusts can manage many types of assets, real estate, bank accounts and investments such as stocks and bonds. Financial advisors can help you set up trusts to put assets in and get benefits during your lifetime and then transfer to beneficiaries after death.
Don’t transfer retirement accounts into a living trust. This will be considered a withdrawal and will be taxed and penalized. Instead, name the living trust as the beneficiary so funds will pass directly upon death.
Reducing Estate Taxes
Charitable Giving
Charitable giving is a powerful tool in estate planning that has tax benefits and supports philanthropic goals. Donating long term appreciated securities can avoid capital gains tax and get a deduction for fair market value. Assets left to qualified charities upon death are deducted from the taxable estate, potentially reducing estate taxes.
Including charitable gifts in your estate plan can give you big tax benefits and income tax deductions up to 60% of adjusted gross income. Strategies like naming a charity as a beneficiary or setting up charitable trusts can incorporate your philanthropic goals into your estate plan.
Gifting Strategies
Gifting strategies are another way to reduce the taxable value of the estate. The annual gift tax exclusion is $18,000 per person for 2024, so you can give a specific amount each year to as many people as you want without incurring gift taxes. Lifetime gifts can also reduce the taxable value of the estate.
Incapacity Planning
Planning for incapacity is part of estate planning. Having the right documents in place ahead of time will give you great protections and make sure your wishes are followed. We will go into medical decisions, healthcare directives and durable powers of attorney.
Medical Decisions and Healthcare Directives
Clear medical directives will make sure your treatment preferences are followed if you can’t communicate them yourself. A living will states the types of medical treatment you would or wouldn’t want if terminally ill or permanently unconscious. It also states your wishes for artificial life support where there is no expectation of recovery.
Health care proxies allow someone to make health care decisions for you if you are incapacitated. These legal documents will guide health care agents and doctors in making decisions that align with your wishes.
Durable Powers of Attorney
A durable power of attorney remains in effect even after the principal loses capacity, so an appointed agent can manage your financial affairs if you can’t. This legal document is important so your financial needs are met and your assets are managed wisely during periods of incapacity.
Also, a healthcare power of attorney appoints an agent to make medical and personal care decisions if you can’t make those decisions yourself. Choosing a strong and trustworthy agent is key because they will have to make your wishes even when others want to make different decisions. They need to be able to stand firm in tough situations.
Special Considerations in Estate Planning
Creating a Succession Plan
Creating a succession plan involves evaluating business arrangements related to ownership, corporate structure, and business interest valuation. The plan should include information on potential successors, trigger events or timelines, operating procedures, and financials.
For example, selling to a co-owner can be facilitated by a buy-sell agreement, often funded by life insurance policies. Transferring ownership to an internal employee will ensure a smooth transition because they know the business. Buy-sell agreements will restrict business ownership transfer to intended owners and create options to buy ownership upon certain events.
Blended Families
Blended families need estate planning to ensure fair distribution of assets among biological and step-children. A clear and binding estate plan will reduce conflicts among children from different marriages. Family trusts can be created where assets go into a combined trust after the first spouse’s passing, so the surviving spouse can distribute assets based on each child’s needs.
Special Needs Trusts
Special needs trusts provide financial support to beneficiaries with disabilities without disqualifying them from public assistance. There are three types of trustees for a Special Needs Trust: personal trustee, professional trustee, and corporate trustee. Choosing a personal trustee often means selecting a family member or close friend.
A professional trustee is usually an attorney, accountant, or other professional with trust management experience. Corporate trustees, such as banks or trust companies, provide structured oversight and can handle complex trust administration. These options will ensure the special needs beneficiary gets the support and care they need.
Cost of Estate Planning
Many people are concerned about the cost of estate planning, and this often leads to excuses and delays in setting up even the basics. So, what did our respondents say were the most challenging aspects of estate planning? The highest was “the cost involved,” at 27.8%, followed by “understanding legal terms,” at 23.6%.
Cost Factors
Several factors affect the cost of estate planning:
- Legal fees
- Location
- Complexity of documents
- Attorney experience and specialization
- Ongoing maintenance and updates
The type of documents required, from simple wills to complex living trusts, will impact the overall cost. Ongoing maintenance and updates to the estate plan, required due to changes in laws or life circumstances, will add to the total cost. Our survey respondents were mixed in how often they updated their estate plan, but the majority agreed that their top two reasons for updating would be changes in family circumstances at 45.8% and changes to the law at 18.1%.
Life Events and Estate Planning
Major life events like marriage, divorce or having a child should trigger a review and update of your estate plan.
Marriage and Divorce
After marriage review how your assets are titled and update primary and secondary beneficiary designations as part of your estate plan. Divorce may invalidate beneficiary designations and provisions in your will or trust, so you’ll need to update your estate plan. After a divorce, you’ll need to update your will, trust, and beneficiary designations to prevent your ex-spouse from inheriting your assets.
Divorce will automatically revoke any gifts in your will to your ex-spouse but it’s safer to create a new will. A new will should:
- Name a new executor and alternate to avoid your ex-spouse being appointed
- Revoke a joint revocable living trust created during marriage
- Possibly create a new one after the divorce
Having a Child
Having a new child is a major life event that requires a review and update of your estate plan to secure your future. You should update beneficiary designations on life insurance policies and retirement accounts to include your new child. Creating or updating your will is key to naming guardianship and inheritance for your new child.
Is your Estate Plan Complete?
Interestingly, 65.3% of our survey respondents mentioned not including their login and password for financial accounts in their estate planning documents! This is a significant oversight! While there are ways to get the login credentials for major financial accounts like savings, checking, and retirement accounts after proving that someone has passed, other accounts may not have a legal method in place or a physical way to retrieve the password (think certain crypto assets)!
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