Estate planning, or legacy planning, entails preparing your affairs for the future, including death and other life events. While older adults might give more thought to estate planning, it is an essential tool at any age.
Why It’s Important
With estate planning, individuals and families can protect their interests after death or incapacity.
- You can provide for their spouses, children, and dependent family members when you pass away.
- You can arrange your care and financial affairs should you suffer a severe accident or illness that renders you incapacitated.
- If you are a parent, you can nominate a guardian to care for and manage the inheritance of your minor children.
- If you own a business, you can prepare to transfer it to family members, colleagues, or other trusted individuals.
- You can make arrangements for your long-term care when you can no longer live on your own.
- You can also make funeral preparations, determine what happens to your body when you pass, and prepay for your funeral, all of which can help lessen the burden on your family members.
What Is an Estate?
Legacy planning entails passing on your estate. Your estate is everything you own, including:
- Savings and checking accounts
- Retirement accounts
- Life insurance
- House and other real estate
- Personal possessions, such as jewelry, furniture, and sentimental items
When you die, your estate encompasses all your property upon death. If you sold or gave away property before death, it is no longer part of your estate, and you cannot transfer it upon death.
Items you own with another person are also part of your estate. Depending on the type of asset, it might automatically pass to the other owner. For instance, if you own a home with your spouse as tenants by the entirety, it will pass to your spouse upon your death.
What Is an Estate Plan?
An estate plan consists of legal documents and arrangements that determine the distribution of your assets when you die or outline your care if you become incapacitated.
While a will can be a central component of an estate plan, a solid plan encompasses more than a will. It can also include legal tools that allow assets to pass outside of a will and probate, the process by which a court oversees the distribution of assets in a will.
Estate Planning Tools
In addition to your will, your estate plan could include the following:
- Purchasing jointly owned property or adding a joint owner to your property
- Designating a beneficiary on a pay-on-death bank account, retirement account, or annuity
- Buying life insurance to benefit your family should you pass away
- Creating a trust for a child
- Obtaining long-term care insurance to cover future nursing home or assisted living fees
- Executing power of attorney documents, naming health care and financial agents
- Making a living will, providing instructions for care should you become incapacitated
- Preparing a transfer on death instrument to pass ownership of your property to a beneficiary upon death