Estate Planning

There is a widespread misconception that "estate planning" is of importance only to the wealthy. This is due, in part, to the emphasis of the financial service industry on planning for estate taxes, which only concern larger estate owners. This tutorial, above all, should help you recognize a number of other significant issues that deserve everyone's attention. Other tutorials explore the legal concepts and procedures, as well as the tools and methods of estate planning, probate, wills, and trusts.

What is Estate Planning?

Although one's "estate" is adequately defined as his or her "property," there is no precise definition of "estate planning." Your estate plan can be viewed as a series of steps to be taken, so that after you die, your property will be handled in a way that recognizes your values and wishes regarding your survivors and any charitable interests you might have. When folks start thinking about these things, some important lifetime concerns often come to mind, too, such as preparing for possible physical or mental disability. So those issues are frequently addressed as well when one plans his or her estate.

Estate Planning

Where to Start? The prospect of estate planning can be intimidating because there is usually no single clear answer to that question - there can be so many inter-related human and financial factors to consider. Perhaps your thinking should focus on these two questions:

  • First, if you died tomorrow, what would you want to happen?
  • Secondly, what, most likely, actually would happen?

A good estate plan is designed to bring reality in line with your desires, to the greatest extent possible, given the practical problems and limitations you face. The steps in the plan might include candid family discussions, drafting a will and trust, changing the beneficiary designations on some accounts, buying life insurance, etc. As for "problems," experience shows that the most common ones are insufficient money to fund all of one's goals and survivors who do not act as hoped or expected.

Let's now take a look at a simple will, which provides a good place to dig into our study.

The Need For, Structure and Function of A Simple Will

Everyone should have a will. Even folks of modest means should at least have a simple will, for two reasons:

  • To name an executor (sometimes also referred to as a "personal representative") to wrap up their affairs, and
  • To specify, "who gets what," from their property to avoid family squabbles.

In the absence of a will, the state law of intestacy determines how the decedent's (the deceased person's) property is distributed. In many situations, the law dictates exactly what the decedent would have wanted anyway if he or she had taken time to write a will. But many times the law does just the opposite.

Too often one mistakenly thinks that one's heirs know what they are "supposed" to do, know what they're to get, or will act appropriately. Family squabbles regularly occur because siblings cannot agree on how to distribute mom's candlesticks, ashtrays, or microwave oven. When big-ticket items are involved, things can get bitter and ugly. A will should, therefore, be used, to either list a particular person to receive each item of property or to set out a procedure for making the distribution - e.g., alternating selections by the two children beginning with a coin flip.

Keep in mind that estate planning should not occur in a vacuum. It should be seen as but one step in the process of comprehensive financial planning. This should include risk management and insurance of several types, as well as investment and retirement planning. As with any lifetime planning, merely having an estate plan is not enough to ensure it will work. Indeed, it is likely to fail if your financial and other personal affairs are not properly arranged at the time of your death.