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Personal Finance

How to Tackle Estate-Planning Basics

Guess what? You’ve probably already started the process.

Collage of Christine Benz portrait on blue abstract illustrative background.

Estate planning is one of those tasks that makes almost any other job look appealing, no matter how lowly—cleaning the filter on the vacuum cleaner, setting up a password manager, you name it.

First, you may wonder if your assets are substantial enough to warrant an estate plan. Moreover, estate plans are usually drafted by lawyers, and that means dollar signs. And then there's the obvious issue: Do you really want to spend time contemplating your own death or disability, which is what estate planning requires you to do?

The good news is that you've probably already done a little bit of estate planning—you just may not be aware of it. If you've designated beneficiaries for your retirement accounts, you've started the estate planning process. Ditto if you've picked a guardian for your young children—even if you've not yet formalized it—or compiled a list of all of your household's liabilities and assets.

Indeed, it’s helpful to think of estate planning as a process rather than something that’s one-and-done and begins and ends in an attorney’s office. Crafting an estate plan involves a series of steps, some of which you’ve probably already undertaken and are probably going to need to revisit as your life unfolds.

Here are the key steps to take.

Step 1: Find a Qualified Attorney

Because your estate plan will likely need to be updated as the years go by and your personal circumstances change, it makes sense to find an attorney who practices in the community where you live. That way, you can meet with him or her on an ongoing basis if need be.

Start by asking other financial professionals who you work with—whether a financial advisor or an accountant—for recommendations. If you have a specific situation that is likely to affect your estate plan—for example, if you’re a small-business owner or if you have a child with special needs—be sure to ask for referrals to attorneys who are well-versed in those areas.

Before you select an attorney, it's perfectly reasonable to conduct a basic informational interview. (If the attorney is unwilling to answer these questions without charging you, that should be your cue to move on.) Ask the following:

  • How long have you been practicing law?
  • How long have you been practicing this type of law?
  • How many estates have you settled?
  • What is the typical asset level for your clients?
  • Do you have experience with situations like mine? (Blended/divorced family, business owner, special-needs child, child with chemical dependency, and others)
  • How do you charge for your services? What is an estimate of the charges for my estate plan?
  • Do you have experience with tax planning? (Particularly important for large estates)

As you speak with a prospective estate-planning attorney, also weigh the intangibles. Do you like this person, and would you be comfortable supplying him or her with personal information about your finances and family situation?

Step 2: Take Stock of Your Assets

Before you meet with your attorney, spend some time enumerating your assets and their value: your investment accounts as well as life insurance, personal assets such as your home, and your share of any businesses that you own. You should also gather current information about any debts outstanding. Your estate-planning attorney is likely to provide you with a worksheet to document your assets and liabilities, but it’s helpful to collect this information in advance.

Step 3: Identify Key Individuals

Another important aspect of estate planning is identifying the individuals you trust to ensure that your wishes are carried out in case of your death or incapacity. You’ll need individuals to fill the following key roles. Note that the same individual can fulfill more than one role.

  • Executor: A person who gathers all of your assets and makes sure that they are distributed as spelled out in your will. The executor must be extremely detail-oriented and comfortable with numbers and should also be able to find the time to work on your estate. Many people call upon family members to serve as executors, but it’s also possible—and in some cases desirable—to hire a professional (such as a bank trust officer) to serve as your executor.
  • Durable (or Financial) Power of Attorney: A durable power of attorney is a document that grants an individual the legal authority to make financial decisions on your behalf if you should become disabled and unable to manage your own financial affairs. It’s important that this person understands your general wishes, in this case about your financial affairs. The person acting as your agent for durable power of attorney should also be detail-oriented and adept with financial matters. Your documents should specify when the durable power of attorney would go into effect—upon your incapacitation, for example.
  • Power of Attorney for Healthcare: A power of attorney for healthcare is a document that specifies whom you entrust with making healthcare decisions on your behalf if you are disabled and unable to make them on your own. Ideally, this is a person who lives in close geographic proximity to you and who also understands your general wishes about your own healthcare.
  • Guardian: A person who would look after your children if you and your spouse were to die when your children are minors. That’s unlikely to happen, of course, but it’s still important to give the decision due consideration. You want your child’s guardian to share your and your spouse’s values and views on parenting, and it’s also important that the guardian you choose be willing to raise your kids if called upon to do so. Financial wherewithal and acumen should also be considerations.

It’s possible to designate two guardians—one to look after your children and another to look after your children’s financial assets.

Step 4: Know the Key Documents You Need

When you meet with your estate-planning attorney, they will make recommendations about your estate plan and that, in turn, will determine which documents you need. At a minimum, however, you should ask your attorney to draft the following:

  • Last Will and Testament: A legal document that tells everyone—including your heirs—how you would like your assets distributed after you’re gone.
  • Living Will: A document that tells your loved ones and your healthcare providers how you would like to be cared for if you should become terminally ill; usually includes details about your views toward life-support equipment. (Called a “medical directive” in some states.)
  • Medical Power of Attorney: A document that gives an individual the power to make healthcare decisions on your behalf if you are unable to do so.
  • Durable (Financial) Power of Attorney: A document that gives an individual the power to make financial decisions and execute financial transactions on your behalf if you are unable to do so.

Step 5: Manage Your Documents

Once your estate-planning documents are drafted, destroy any older versions of them. You must also keep the documents in a safe place, either in a home safe, in the top drawer of a secure file cabinet in your home, or in your safe-deposit box. The downside of storing these documents in a safe-deposit box is that your loved ones may have difficulty accessing them in the event of your death or incapacity.

Notify your executor of the whereabouts of your estate-planning documents, and provide copies of the relevant documents to your executor, agents for powers of attorney, and the guardian for your children. When you hand off these documents to your various agents, it's also a good time to discuss your wishes with them. Creating a master directory can provide your heirs with an invaluable overview of your assets and accounts; just be sure to keep it in a safe place.

Step 6: Don’t Neglect the Softer Side of Estate Planning

In addition to tackling the above estate-planning basics, also spend time thinking through important issues that your estate plan doesn’t address. If you end up needing long-term care, for example, would you rather receive that care at home, provided you could afford it? If in the unlikely scenario your guardians have to care for your minor children, what are the key values you’d like them to impart to your kids? Be sure to think through some of the “softer” aspects of estate planning that aren’t usually addressed in a typical estate plan.

Step 7: Plan to Keep Your Plan Current

Last but not least, plan to keep your estate plan current. One of the biggest estate-planning pitfalls is drafting an estate plan but not bothering to keep it up to date. Plan to notify your estate-planning attorney, and possibly revise your documents, if you experience any of the following:

  • Change in marital or family status (for example, marriage, divorce, birth, or adoption of child)
  • Major change in assets—either sale or purchase
  • Major change in financial status
  • Death or ill health of one of your beneficiaries
  • Death or ill health of executor, power of attorneys, or guardian

This is an updated version of an article that was originally published in April 2023.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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