When it comes to financial planning, the focus is typically on better preparing you for the future. We work with clients to try to limit taxes, create more optimized portfolios, help them decide the best time to claim Social Security and develop sustainable retirement income plans. All of these aspects of financial planning help you on the path to your financial future and your long-term goals.
There is, however, one exception: estate planning.
True, estate planning does focus on you, and it does provide you greater security and peace of mind. The difference is that while most elements of financial planning primarily benefit you, estate planning primarily benefits surviving loved ones and charities. It's this difference that can make estate planning such a complex pillar of financial planning. To help address any uncertainty you may have, we thought we'd answer three of the more common estate planning questions we're asked.
I Have a Will. Isn't That Enough?
The foundational element of your estate plan is likely to be your will, but that may not be the only element you need. Depending on the complexity of your estate, you may want to have a trust, too. Health care directives, powers of attorneys or guardian designations are additional legal documents you may want to consider.
You should also keep in mind that your will isn't necessarily the final word when it comes to distributing your assets. The beneficiary designations on your retirement and brokerage accounts, as well as any life insurance policies you own, will supplant whatever is written
in your will. Review those beneficiary designations on a regular basis to ensure the money
in your accounts or the death benefit on a life insurance policy is going to the correct
person or people.
Do I Need a Trust?
A trust can be costly, time-consuming and an administrative hassle to deal with. This
makes it important to figure out whether you'll actually benefit from using a trust prior to implementing one.
Whether you need a trust depends largely on the types of assets you own. If you have a lot of assets that are subject to probate (e.g., real estate or precious metals), then a trust may make sense for you as the assets inside of a trust are exempt from probate. And if you own real estate in more than one state, you may be subject to probate in multiple states if you don't have a trust.
On the other hand, if the bulk of your assets are covered by beneficiary designations or owned in joint tenancy, those assets are already exempt from probate, meaning the value of a trust may be limited.
How Do I Choose an Executor For My Estate?
The executor—also referred to as the personal representative—is responsible for carrying out the instructions in your will, settling any debts that you may have and paying any taxes your estate may be subject to.
As a general rule, there are three traits we recommend when naming your executor. First, it should be someone with the capacity to carry out the needed tasks associated with the role. Second, it should be someone who is willing to serve as the executor; talk with the person you are considering and outline any details that will help ensure the executor will carry out your wishes correctly. Finally, you should name someone who is intimately familiar with your unique situation, namely either a family member or a close family friend.
Assuming you don't spend your last dollar the day you take your last breath, you're likely going to want to have an estate plan. And while this column may not have answered every question you have about estate planning, it will hopefully help you feel more confident when navigating the fundamentals.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal adviser.