Estate Planning
Estate Planning:
A Comprehensive Guide
Kris Kopac
Do you have an estate plan?
Estate planning, or end-of-life planning, is one of the most important things you can do for yourself and your family.
Your estate plan is a roadmap for who will take care of your children and/or pets and who will inherit the assets you worked so hard to accumulate when you pass on. Estate plans can also dictate who will make decisions about your medical care if you are unable to make decisions for yourself. Without an estate plan, the laws and courts in your state will make some of those decisions for you, and they may not know your wishes.
End-of-life planning is essential for everyone. However, estate planning is also one of the easiest things to put off, because no one likes thinking about what will happen after they die. In fact, a study by AARP found that nearly 60% of American adults don’t have a will or living trust.
We know that it can be tough to get started on end-of-life planning. That’s why we put together this simple guide for you. We will walk you through the basics of estate planning step-by-step.
What is an estate plan?
Simply put, an estate plan is a guide for your loved ones, trusted professionals, and the courts to make sure that your wishes are fulfilled when you pass away or are incapacitated.
Your “estate” is all of your property and assets, including your home, personal property, financial assets, family heirlooms, valuables, and even digital currency.
An estate plan consists of multiple different documents that cover how to distribute those assets, who will care for your dependents, and how to manage your healthcare emergencies.
The specific documents and pieces of your estate plan will vary according to your family, situation, priorities, finances, and the state you live in.
Do I need an estate plan?
Yes! Every adult should have an estate plan, even if you have no children or assets.
If you die without a will (dying intestate), the state will step in to decide what happens to your assets and who your heirs are. Your assets could be tied up in probate court. This process adds time, stress, and additional costs for your loved ones, and could leave a very different legacy than the one you would choose.
It is particularly important to have an estate plan if you have:
A spouse: In many cases, your spouse will inherit your possessions if you die without a plan, but that is not always guaranteed. Your estate plan makes sure that your spouse receives the support they need.
Kids, pets, or other dependents: you need an estate plan to specify who will be your dependents’ guardian if something happens to you. Your estate plan can also designate funds for their care.
Build your estate plan in Trustworthy
Why do I need an estate plan?
Among many other benefits, your estate plan can:
Allow you to choose who inherits specific assets, possessions, and other valuables.
Reduce the time and cost it takes for the courts to settle your estate.
Name guardian(s) for your dependents.
Reduce family conflicts over your estate.
Help you reduce taxes on your estate for your heirs.
Outline a plan for your funeral to reduce stress on your loved ones while they are grieving.
Designate someone you trust to make medical decisions for you if you cannot make them for yourself.
Assign a loved one or trusted advisor to manage your finances if you cannot manage them independently.
How to make an estate plan
Step 1: Decide whether to bring in an expert.
The first step in creating an estate plan is deciding whether to bring in professionals like an estate planning attorney or a financial advisor to help. These experts can help you manage more complex estates and ensure that everything in your plan is airtight.
While everyone would benefit from working with estate planning experts, you would particularly need professional support if you:
Own a vacation home or other property in a different state.
Have a partner with whom you aren’t legally married.
Have a divorce or custody agreement in place.
Remarried or have a blended family — especially if you have children.
Prefer that someone does (or doesn’t) get access to you at the hospital.
Are concerned about state or federal estate and gift taxes.
If you use Trustworthy, you can add your attorney and financial advisor to your Trustworthy account to collaborate on your estate plan. Our expert team can also help you gather paperwork or documents to share with your estate planning attorney.
Step 2: Make a list of your physical possessions
Before you can decide what will happen to your possessions, you need to make sure that you are accounting for all of them.
You should list everything of value, including your home (if you own it), vehicles, jewelry, art, antiques, family heirlooms, computers, tvs, power tools, and other electronics.
Are you overwhelmed by the idea of trying to find all your property and assets? Trustworthy is here to help. Instead of starting with a blank page, our AI creates a customized template for you to inventory your possessions.
Even better, you can add important information that your loved ones will need to know about the property, from account numbers to family stories. Simply sign into Trustworthy, go to the Property tab, and start filling in your template.
Step 3: List your digital possessions
Our lives are increasingly lived in the digital as well as the physical world. As such, estate planning has to take your digital assets and life into account.
Put together a list of all your email and social media accounts, cryptocurrency, money transfer apps (like PayPal and Venmo), and important passwords.
Most of your digital estate plan should be kept out of your will. Your will becomes public after you die, and it would not be good for your important passwords and accounts to end up in the hands of nefarious strangers. The digital world also changes faster than the physical world, and you don’t want to have to update your will every time you change a password or create a new account.
You can list your important digital accounts and passwords in the Passwords section of Trustworthy, or find a secure location where your family members can access the information.
Step 4: List your debts
Next, it is time to inventory all of your debts, from credit cards to mortgages, personal loans, auto loans, and private student loans.
In your list, you should add account numbers, contact information for the companies, and where to find any related documents or agreements.
Trustworthy makes this process easy. In the Money tab, you can enter credit cards and loans. With your permission, Trustworthy can automatically pull in your account information with Plaid and add the company’s contact information.
Once you are finished with your list of debts, make copies of your lists of assets and debts for your estate planning experts, your executor, and your partner. You can also invite them as collaborators to your Trustworthy account.
Step 5: Check and update the beneficiaries on your retirement accounts and insurance policies.
An essential part of estate planning is checking and updating the beneficiaries on your financial accounts and insurance policies. If you have designated a beneficiary, the account will pass on to them no matter what your will says about how your assets will be divided.
Many accounts will allow you to update your beneficiaries online. However, if your 401k account or life insurance is provided through work, you may have to contact your company’s plan administrator to check and update your beneficiaries.
Step 6: Choose an executor and guardians (if you have children)
The next step is to choose your executor. An executor is a person who is selected to manage the execution of your last will and testament and make sure that your wishes are carried out.
Executing a will can take dozens of hours of phone calls, paperwork, and diligence and years of work. For that reason, it is important to choose an executor who has the administrative and organizational chops to get things done.
Some people choose not to name a close family member as the executor of their will because they understand the emotional pain this task may cause. Whatever you decide, you should inform your chosen executor of your decision and ask them if they’re able to take on the role, as it is a big commitment on their end.
You can name more than one executor. However, it is important to note that your executors would have to make all decisions unanimously, which might be difficult in such a challenging time. If you name more than one executor, every executor must co-sign paperwork.
It’s also a good idea to name someone as a backup, in case your first choice isn’t able to perform the duties.
Step 7: Create a will.
Once you have your lists of assets and debts and your executor in place, it is time to start creating the documents in your estate plan. We recommend that you start with your will, the centerpiece of your estate plan.
Many lawyers will help you create a will for less than $1,000.
You can also work with online companies like FreeWill and Trust&Will to create your own. (Pro tip: you can access exclusive discounts on these and other services through the Trustworthy marketplace and earn credit toward your Trustworthy membership!)
Your will should include:
Assets and property - the property and assets you are passing on to your loved ones, from your 401(k) and your house deed to grandpa’s favorite watch.
Beneficiaries - the people who will inherit your property and assets.
Custodian/Trustee - an adult custodian who is named to manage money in a trust account on behalf of a beneficiary who is a minor.
Executor - Someone to manage your will and close your estate. An executor is also called an administrator or personal representative
Guardian - the person/people selected to take care of your kid(s) and pet(s).
Instructions on finances, distribution of money, and paying debts.
Additional funeral or burial instructions.
Gifts to individuals or charities.
Once you have drafted your will with your lawyer or an online service, it is time to sign and notarize it. Although a probate judge may adhere to the instructions of an unsigned will if there is reason to believe it represents your true intentions, an unsigned will is not sufficient proof of your intentions. There is no guarantee that your wishes will be carried out if your will is unsigned.
It is standard procedure to sign your will in the presence of two witnesses. They will also sign your will to validate it.
Signing your will with your two witnesses and a notary present is an additional safeguard to ensure your will is legally binding, although it isn’t required in most states. You can usually find a free notary service at your bank or credit union, and some UPS stores offer notary services for a nominal fee. You could work with a mobile notary who will travel to your office or home for an additional fee.
An increasing number of states have legalized online notary services, but you should check your state’s laws before getting your will notarized online.
Step 8: Complete your estate plan.
With your will completed, it’s time to finish the other documents in your estate plan.
We will cover how to create two of the most common documents: a power of attorney and a living will (advance healthcare directive). As with your last will and testament, your estate planning attorney can also help you create these documents, or you can work with an online service.
Create a power of attorney (POA)
The power of attorney (POA) document names specific people who will take care of important matters - such as financial and medical decisions - on your behalf while you are alive. After you have passed away, the POA is revoked and your will becomes effective.
In your power of attorney, you do not have to choose only one person to take care of your affairs while you are unable to make decisions for yourself. In fact, you should name a backup person for each role in case your first choice isn’t able to carry out their responsibilities.
The different powers of attorney include:
Executive power of attorney
An executive POA takes the lead in managing big decisions on your behalf. If you have named several different POAs, this person will do their best to ensure your wishes are being carried out by the team you chose. If you don’t name POAs for different roles, the executive POA will cover all these roles. Once you die, the executor of your will takes over managing your wishes.
Medical power of attorney
A medical POA advocates for you when you are unable to communicate your medical preferences or provide consent for procedures. For example, if you are in the hospital with a severe injury that has caused you to lose consciousness, a medical POA will step in to advocate for you. The medical POA does not apply to end-of-life decisions. Designating a medical POA is not the same as completing a living will, which we will discuss in the next section.
Financial power of attorney
A financial POA manages your personal accounts. An accountant can provide an annual review to manage your bank accounts, or your executive POA can hire a professional to manage your bookkeeping, file taxes, and review statements.
Digital power of attorney
For many, our administrative lives now center around digital accounts. A digital POA is granted access to your online and digital accounts to help needed transactions run smoothly.
In order to make your digital POA’s tasks more easy and accessible, consider granting them access to a password manager so they are able to log into the necessary accounts. For example, if your executive POA has access to your Trustworthy account, they can share your password information with your digital POA.
Create a living will (advanced care directive)
A living will (also known as an advance directive, healthcare directive, declaration, or directive to physicians) records your wishes around end-of-life care if you are unable to speak for yourself. It is state-specific and legally binding.
As with your last will and testament, it is important to make a living will in advance. Once you actually need a living will, it is too late to create one.
What to include in your living will
A living will should be as specific as possible because very few medical decisions are cut-and-dried. Clearer guideposts about the types of medical care you do and do not want to receive will help remove some of the uncertainty in end-of-life decisions for your loved ones.
What does your quality of life mean to you? Answering that question in your living will helps your medical POA speak for you. The more specific your answer, the better.
A living will may answer questions around whether you do/do not want to receive:
Antibiotics
Cardiac resuscitation
Invasive diagnostic tests or procedures
Mechanical respiration
Kidney dialysis
Tube feeding
Experimental medical procedures
A living will requires witness signatures and sometimes notarization, depending on the state in which you live. Some states also do not allow the following people to act as your witness:
Someone who may inherit part of your estate
Someone named in your last will and testament
A relative by blood or marriage
You can find a notary at your bank, credit union, library, county clerk’s office, or local UPS store. An increasing number of states will also let you use online notary services, but you should check the law in your home state before working with an online notary
Step 9: Give your executor a copy of your estate documents
Your estate plan documents are finished; great work! You have made it to the last step. Now, it is time to make sure that the people you have chosen to manage your affairs have the information they need to do so.
Make copies of your estate plan documents and give them to your executor and POAs. You should also tell them and the other people named in your will where your original will is stored.
The location that you choose for your original estate documents should be secure. Keep your original estate documents with your attorney, or in a safe spot with other important information.
If you use Trustworthy, you can complete this step with a few clicks of a button. Simply upload your plan into the Estate Documents section of Trustworthy, and invite your executor and POAs as collaborators in your account.
Build your estate plan in Trustworthy
How often to update an estate plan
Now that your estate plan is completed, all the work is done, right?
Not quite. You have finished the most time consuming and difficult part of estate planning, but you still need to make sure that your plan changes as life does. You should review your estate plan at least once every four years to make sure it reflects your current wishes and assets.
You should also update your plan after life-changing events, like getting married or divorced or having a child.
Finally, you should keep an eye on financial legislation and changes to tax laws that could affect your estate and change your plan accordingly. If you have worked with a financial advisor or estate planning attorney, they can help you figure out when these changes might require you to update your estate.
No need to set a calendar reminder. If you add your estate plan to Trustworthy, we will add an automated reminder for you to review and update your estate plan regularly. We remember so you don’t have to.
What documents are part of an estate plan?
There are three main documents that frequently included in estate planning: a last will and testament, a power of attorney, and a living will (or “advance care directive”).
Depending on your circumstances, you may want or need to make additional documents part of your estate plan. We have included the most common ones.
Last will and testament
Who gets which family heirlooms? How will your financial assets be divided? Who will take care of your children or pets? These are all crucial answers that a will provides for those you leave behind.
Your last will and testament, or will, is the centerpiece of your estate plan. Wills are state-specific, legally binding documents that state your wishes and instructions on subjects like who will inherit your possessions and how to care for your dependents.
Many lawyers will help you create a will for less than $1,000. You can also work with online companies like FreeWill and Trust&Will to create your own. (Pro tip: you can access exclusive discounts on these and other services through the Trustworthy marketplace and earn credit toward your Trustworthy membership!)
Power of attorney (POA)
A power of attorney is a legally binding document that allows you to name people to make key decisions for you if you are incapacitated. You can name several people in your POA document to handle specific situations, such as college funds or childcare.
Living will (advanced care directive)
A living will records your end-of-life wishes about what types of medical care you do (or do not) want if you are unable to speak for yourself.
Healthcare proxy
A document that names someone to make medical decisions for you if you are incapacitated.
Letter of instruction
A document that covers informal estate information that isn’t addressed in your will. The letter could include a last message for your loved ones, details on where to find the possessions in the will, or funeral plans.
Beneficiary designation
Forms that allow you to transfer assets like financial accounts, retirement accounts, or life insurance policies directly to the recipient, regardless of the terms in your will.
Trust
A legal arrangement where a third party (trustee) holds assets on behalf of your beneficiaries. Trusts have a few benefits in addition to your will: they can specify how and when your assets pass to your beneficiaries.