Getting Started with Estate Planning

Over the past few years, I've done a reasonable job getting on top of my personal finances. I've paid off credit cards. I've put systems in place to track and analyze my spending each month. My files are in order. I've learned how to communicate about money with my spouse. On any given day, my financial life is running pretty smoothly.

Sierra is scared of falling off the edge of the worldLooking ahead, though, is like looking off the edge of a medieval map: “Here Be Dragons!” I have an underfunded retirement account, no will, no one named as a guardian for my kids, and no clear plan for what happens to my stuff when I'm gone.

I'm not unusual in this. Few people in their 30s have made appropriate arrangements for their estates after they're gone. End-of-life issues seem infinitely in the future, something even my parents aren't really paying attention to yet.

The fact is, we all should be. Estate planning matters at any age, as soon as you have assets to leave behind and people to leave them to. Not only does planning your estate protect your family should disaster befall you, but it helps you get better clarity about your financial goals in the here and now.

How To Start
Like many personal finance topics, I found my own ignorance to be a huge gating issue to getting started on estate planning. I vaguely knew I should have a will, but I don't really know what else goes into planning an estate. All of it seemed to require time, money, and attention I don't really have to spare. I wasn't even sure where to start. So I didn't start. I just let it go undone.

To get a grasp of the basics, I brushed up on them at CNN's money site. This article gave me a decent sense of what steps to take for planning my estate. At the core, there seem to be four main areas of estate planning:

  • Making decisions about your estate. This includes naming heirs for any assets you leave behind as well as naming a guardian for any minor children and making some provisions for how you want your assets distributed.
  • Creating documents to record and enforce those decisions.
  • Organizing your documents so that your family can find them and make sense of them.
  • Communicating your intentions to your loved ones.

Decision Making
You probably have a good idea of the basics of your estate plan. If you have life insurance, you've named a beneficiary for the policy. You know who will get the bulk of your assets in the event of your death, and who you list as next-of-kin or an emergency contact on your health forms. A good estate plan requires you to get clear and specific about these things. You'll need to answer (at a minimum) the following questions:

  • Who will inherit your assets?
  • Do you have any specific gifts or bequests you want to make? You may, for instance, want to leave your assets primarily to your children, but bequeath your book collection to the local library and your vintage camera to your nephew, the family photographer.
  • If you have minor children, who would you like to have raise them should both parents die or become incapacitated?
  • Who will care for you and make decisions for you if you become incapacitated by illness or injury?

Documentation
The primary financial document you need to create is a will. If you don't have a large estate (by which I mean less than the 3.5 million dollars that would put you on the hook for estate taxes), you should be able to use a simple, self-made will. Hiring a lawyer for this is unlikely to be necessary. Nolo.com recommends using either their software or Quicken's Willmaker for creating your own basic will.

Note: Opinion is divided over whether you can (or should) do your own will. Some say, “You bet!” Others are adamant that you need a lawyer to be sure things are done properly.

Your will should cover the disposition of your assets, name a guardian for your kids, name someone to manage property you leave to your kids, and name the executor of your estate. The executor is the person with the authority to see that your will is enforced.

In addition to a will, you may want to create a living will or advance medical directive. These are documents that let your doctors and caregivers know your wishes regarding medical care in the event of a major medical event where you may be unable to make your wishes known. To give your living will more power, you may also wish to assign medical power of attorney to your spouse or another loved one. Having someone acting on your behalf can help ensure that your wishes are followed.

You should consider creating a power of attorney for someone who can take over your financial affairs if you are alive but unable to manage them. You can assign someone either “durable power of attorney” or “springing power of attorney”. The former is automatically in place. The latter requires a court hearing to prove that you are not competent to handle your own affairs. A lawyer can help you decide which is right for you.

Finally, consider writing a “digital will”. This is a document that identifies all your online accounts at sites like Facebook, Flickr, and Myspace, and gives your family instructions about what you want done with them. It should include all relevant usernames and passwords. While not a legally binding document, this can be an invaluable tool for your loved ones to gain access to your social media accounts and manage them in the way you desire.

Organization
Once you've created these documents, you want to keep them organized in a simple, clear place where your family can easily access them should they need to. That could be in your file cabinet, with your attorney, in a safe deposit box. Wherever you do it, you should also make sure your heirs will have simple, organized access to your financial records and accounts, and any other important papers.

For most of us, these records aren't just on paper anymore. Not only do I need to be sure my estate executor has access to my bank account numbers and 401K accounts; I probably want that person to be able to access those accounts online, too. They'll need to get into my computer, and be able to access my Google documents and Mint account if they're going to really make sense of my finances. You'll want to include any necessary banking usernames and passwords with your important papers, along with your digital will.

Communication
When you've created your estate plan, tell your family about it. Be certain the person you picked to be guardian for your kids is willing to do it. Make sure your executor knows where you keep your will and other important papers. Let your heirs know what to expect from your will. All this will cut down on confusion and conflict after your death.

As you can see, doing all this requires having your financial and personal affairs in order. That effort will serve you well in your lifetime, as well as being a boon to your heirs when you're gone.

More about...Planning

Become A Money Boss And Join 15,000 Others

Subscribe to the GRS Insider (FREE) and we’ll give you a copy of the Money Boss Manifesto (also FREE)

Yes! Sign up and get your free gift
Become A Money Boss And Join 15,000 Others
guest
30 Comments
Oldest
Newest Most Voted
Inline Feedbacks
View all comments
Liz
Liz
9 years ago

Wow. Once again I feel like Sierra Black is talking directly to me. Thanks, Sierra.

retirebyforty
retirebyforty
9 years ago

ICK! Who wants to deal with a will? I’m not planning to die anytime soon….

We just had a kid though so I guess it’s time to grow up and look into this. I’ll discuss with the Mrs. and figure out the sticky details like who should be guardian and where money should go.

schmei
schmei
9 years ago

I’m bookmarking this! I’ve been thinking about this recently, and was feeling sort of lost without a jumping-off point – thanks for the straightforward outline.

Anthony
Anthony
9 years ago

A friend (who is a lawyer) gave my wife and I wills as a wedding present. Sounds creepy, but we had the final documents signed when we signed the wedding certificates and register.

It was a great and well appreciated gift.

Dee
Dee
9 years ago

What about trusts? I’ve been advised that they are better than a will because you avoid probate and they generally can’t be challenged.

KH
KH
9 years ago

@retirebyforty – My dear friend wasn’t planning to die at 42 either, but cancer doesn’t discriminate by age. My best friend from college wasn’t planning on dying at 34, but the drunk driver who pushed her off the road didn’t know that. My uncle didn’t plan on being diagnosed with MS and having to quit his job at 50 either.

Pull your head out of the sand. No one PLANS to die. But they sure as heck ought to plan what will happen to their families when they do.

Lisa
Lisa
9 years ago

We had a will drawn up by a lawyer once the first child was born. It includes who gets what as far as possessions, who the guardian is for the kids and who the financier is for the kids. My husband and I have a living will that dictates what to do in case we are incapacitated and our wishes for/against life support. This will is quite lengthy but we felt it was necessary.

PB
PB
9 years ago

We made our wills when we were expecting our first child because we had some very odd relatives and wanted to make sure that any guardianship would not go to them. No assets to speak of at the time, but real concern about the child-to-be.

Pat S.
Pat S.
9 years ago

I made my first will prior to my initial active duty military deployment, and have updated it twice since. It gives me peace to know that it is there to clear up any misunderstandings… but i try not to think about it.

Justin
Justin
9 years ago

I would add, not being an expert on the subject but speaking from experience, that it pays to continually check in on the status of the plans. My grandfather had his affairs neatly in order with his bank…but it was then bought out by a larger bank just before his passing. We, unaware of the situation (silly us to get so bogged down by his failing health), didn’t realize until after he was gone that this created all sorts of frustrating complications. The money is still tied up in a mess of paperwork due to a lack of communication between… Read more »

Bill
Bill
9 years ago

Another idea is to have a photocopy of the will etc with your executor. When you die the exec. can have problems trying to get in to the safety deposit box for it (paperwork, probate, etc.). At least they can act on good faith from the copy and access funds, etc. Alternatively, if you trust your executor, put their name on the SDB as well. My folks added me as a person to access the SDB, “just in case” and whenever that day arrives it will come in handy. When I wrote my first will (late 20’s) I thought it… Read more »

Richard
Richard
9 years ago

Made a complex topic very understandable–well done! Also consider how your estate plan can leave a legacy for the causes you care about.

imelda72
imelda72
9 years ago

Thank you for this article. It’s a topic I’ve been thinking about, as I’ve realized that at the age of 25 I finally have a positive net worth (despite student loans!). Thanks to this article, I just wrote up my own will and will have a couple of friends witness it.

I’m also reviewing the beneficiary designations on all of my savings/retirement accounts, since that’s really where all of my assets are. So THANK YOU for this introduction-slash-kick in the butt!

Joe
Joe
9 years ago

What keeps me from creating a will is deciding which route I should take, should I hire a lawyer or should I do it myself and which lawyer should I pick, a friend of mine said to simply pick one from the phone book. Any thoughts?

Maria
Maria
9 years ago

Nice reminder Sierra, it took my hubby and I a long time to sit down and discuss about estate planning.

I want to add one information that I got from our lawyer, am not an expert on this, if one lives in the US and the surviving spouse is not a US citizen (permanent resident is still considered non citizen) then the marital deduction law – the unlimited transfer of property is not applicable. I suggest google for QDOT if anybody is interested in knowing more.

SF_UK
SF_UK
9 years ago

Wills can be tricky things, but they are important. Having written my own will, it was surprisingly easy, but then my finances are pretty simple (no dependents, no house, not huge assets). However, I think that even if I had more complex affairs, like my parents, I would be tempted to write an “interim” will, so that at least there was something while I got a “proper” one sorted – dying intestate is a huge problem for those left behind. Your money may not go to the people you think it will. I found a lot of good advice in… Read more »

MaloMonster
MaloMonster
9 years ago

I insisted on getting a will drawn up immediately after my marriage in case anything happened to us, and we would change it as our family and finances changed. We hired a lawyer who was beyond insulting and who “forgot” to draw up our will when promised. He offered a free will to make up for it, but I turned it down because I no longer wanted to interact with him. Almost a year later, we still don’t have a will. Thanks for the reminder about how important estate planning can be. I have to say I’m a little disappointed… Read more »

smirktastic
smirktastic
9 years ago

Great post about something we all need but don’t like to think about. I’d like to add that keeping passwords in one place is a good idea for your family once you’re gone, but should be kept locked until that time. Otherwise it’s an open invitation for identity theft.

cj
cj
9 years ago

At age 32, with the birth of my first child, I got a fabulous book:
The Busy Family’s Guide to Estate Planning: 10 Steps to Peace of Mind by Liza Weiman Hanks

I used that in conjunction with Quicken’s WillMaker from the library and I got the basics down.

I liked the book’s easy to follow steps of one thing at a time. I still have to go back and add another layer (living trust?) and alter everything to include child #2.

But just getting those basics down is a huge confidence builder to tackle the next steps.

Pat Hernandez
Pat Hernandez
9 years ago

No matter your age, if you have children, PLEASE make a will; appoint guardians; make sure that all important paperwork is organized so that it can be found – such as vital statistics documents, medical history of both parents and children to date, medical insurance, life insurance, etc. My husband’s younger brother died Nov 26th. He was 44 years old. He had sole custody of his 9 and 10 year old children. Despite fighting a losing battle with serious chronic illnesses for several years, he had done nothing for in case he died prior to his kids reaching age 18… Read more »

Jen
Jen
9 years ago

Absolutely get a will if you have a kid or are having one soon. Do it! If you’re having problems with getting started, imagine the wackiest relation you have amongst parents and siblings and then imagine them raising your child. That should help get you moving! Check your package of benefits from work — a lot of places have some sort of deal for some minimal legal work, like wills. That’s a good place to start. Do NOT go to the big name legal firm in your city! They are going to charge you their regular rates and take their… Read more »

Jen
Jen
9 years ago

#19: You can write the will to specify all children — so that you don’t have to keep updating it! Check for the proper phrasing of it, but it keeps your will from needing changes, at least for that.

SLCCOM
SLCCOM
9 years ago

It shouldn’t cost a lot to have an attorney look at your hand drawn will. If you screw something up, you can make a major problem for your family. We got wills made up right up after our wedding. I knew that my darling mother in law would probably move to annul our marriage if something happened to my husband shortly after the wedding and leave me up the creek. Also, even if you don’t plan to die anytime soon, and you have a negative net worth, consider that if you die in such a way that a large lawsuit… Read more »

Empty
Empty
9 years ago

I can’t remember who told me that if I wouldn’t go out to dinner and leave my kids sleeping alone in the house without a sitter–and of course I wouldn’t–then I shouldn’t be willing to leave them alone if in the event that something happened to us. So now we have life insurance and guardians and medical directives and powers of attorney and wills and a trust. The trust is not because we have much in the way of assets, but it does control life insurance payouts in the event we both die–my 2-year-old won’t have a fortune dumped on… Read more »

Jenny
Jenny
9 years ago

My husband and I just got our will put together this last summer (right before our second son’s first birthday) using Legalzoom.com. I was happy with the ease of use and thoroughness their software offered. There were even descriptions throughout the process of filling out the forms explaining what each section really was — in plain English rather than legalese.

Thanks for the suggestion to implement a digital will Sierra. That was something I’ve never considered, but it’s so relevant!

average guy
average guy
9 years ago

I need to add my personal experience, along with everyone else’s.

When I was younger and single, back about two decades ago, I paid a friend lawyer to make my will for me.

It was the best decisions I made. Not because I died, because I’m still here. But because it gave me the best piece of mind I could ever have.

Think… everytime I got on an airplane, I used to worry… what if. After I made my will, I knew things would be taken care of in the event of if.

AC
AC
9 years ago

I am surprised no one has mentioned trusts. I think those are much better than wills given the fact that for some, a lifetime of accummulating assets should really go into a fund that can only be drawn on for health, education, etc. purposes.

cc
cc
9 years ago

Just a few cautionary notes: If you’re going to write your own will, make sure that you check the rules on how to properly sign it and what can go in it. Each state has it’s own rules on this stuff and doing it wrong will just create more problems.

Also, keep in mind that your will may not effect some of your biggest assets. For example, you can’t designate in your will who will get your 401(k), IRA, most investment accounts, or your life insurance. You need to designate those beneficiaries separately.

Sara
Sara
9 years ago

Is it appropriate to deal with who should get your pets in your will?

Also, to find a good lawyer ask around to your friends and family. Referrals are the best compliment to an attorney. Just looking in the phone book is a bad idea.

RugbyGuy
RugbyGuy
9 years ago

There is much more to estate planning and wills. Please get a lawyer! Probate is serious and should be avoided if at all possible! If the will is done incorrectly, it can be voided by the court and everything could end up in probate. The judge will decide how to distribute your estate, not you or your executor. In addition, there can be serious and expensive financial repurcussions if both husband and wife die in the same accident. You can state who will be considered as dying first if it cannot be determined. One way to avoid probate? Any asset… Read more »

shares