Want to do everything you can to take care of the people you care about? Then it’s time for both a will and an estate plan.
Too many people think wills and estate plans are for someone else—someone with more assets or more heirs, someone who owns a business or vacations in a second home.
But the truth is much simpler: An estate plan, which includes a will, is a tool that every adult should consider. What are the two most important purposes of estate planning? It allows you to guide your (1) assets and (2) intentions after you’re gone.
It helps people know you promised a special necklace to a friend or relative. It makes clear you intended to donate to your favorite animal shelter. Or it may offer a plan for how others can best take care of your children. Death can be complicated, and in many ways an estate plan and a will help uncomplicate it for your loved ones.
What an estate plan includes:
- Everything you own (cash, investments, property)
- Those you care about (children, pets)
- Things you have an interest in (such as a small business)
An estate plan scales to fit your needs and life stage. For instance:
- If you’re young and unmarried, you may need only a will, beneficiary designations, and medical and financial powers of attorney.
- As a parent, you also need a will to establish guardianship for your children.
- With substantial assets, one or more trusts can help control how your assets are taxed and distributed.
If what’s in an estate plan and whether you need one are clear, how to create one may be a little fuzzier. What are the key steps to estate planning? This checklist of five essentials, from what’s in an estate plan to how you can create one that suits your needs, can help.
Use our estate planning workbook (PDF) to outline your wishes and information family members will need.
1. What’s an estate plan?
An estate plan includes a will, but it’s much more than that. A good estate plan outlines who you want making financial and health care decisions if you can’t make them for yourself. What it usually includes: a will, durable power of attorney, health care power of attorney, and designations (often detailed in a letter of intent) as to beneficiaries and guardianship.
These documents help you:
- support family, friends, or causes that are important to you,
- establish control over who gets what (and who doesn't),
- provide for any children who need a guardian,
- minimize estate taxes and fees, and
- establish ownership when you’re gone for a business or property such as a house or car.
You can start building your estate plan by listing out the value of everything you own. Gather financial statements and write down the location and contents of safety deposit boxes or home safes. Include insurance policies (making note of cash values and death benefits) as well as all liabilities (credit card debt, lines of credit, mortgages, etc.).
2. How does an estate plan differ from a will?
Without a will within your overall estate plan, no one will know exactly how you wanted your property distributed or who you wanted to watch over your children. That means state law (e.g. probate court) may dictate both of those things.
If you don’t leave a will, the probate process could take a long time, often years (depending how complex your estate is). A will makes this process go faster.
It also helps save money. Court costs, probate expenses, fees for law firms and their attorneys, accounting, and appraisal can take a chunk of your estate. Having a will in place, especially combined with a trust, often significantly reduces probate expenses.
3. When to seek help with your estate plan.
Why do people put off estate planning? Emotionally, we tend to avoid thinking of our own mortality. Practically, the process can quickly get complicated and require expert help.
For more complex situations, you can work with an attorney who specializes in estate planning. Your financial professional or tax professional may be able to recommend one since they often work together on behalf of clients. It’s always a good idea to consult with an attorney, especially since state laws vary. But come prepared with key decisions already made to help minimize billable hours: Who should inherit your assets and in what proportion? Who’s your executor to distribute assets? Should your assets be used for minor children’s education? And so forth.
Here are some specific scenarios that call for extra help:
- Your estate is significant.
- You own a business.
- Taxes may be due upon your death.
- Distributing your assets will be complex, especially if you lived in several states or outside your home country.
- You have young children who may require guardianship.
- You want to leave some (or all) of your estate to charity or friends.
- Your family dynamics are complicated.
Tip: If you decide you can tackle your own estate plan, those who participate in a retirement plan from Principal® or have one of our IRAs can access free online resources through ARAG to prepare a will, power of attorney (including for health care), living will, and more. Check with your employer to see if pre-paid legal help is part of your employee benefits.
4. Regularly review your will and other documents in your estate plan.
“As life changes, your estate plan may change, too,” says Heather Winston, product director at Principal. Review your estate plan annually or when one of these events occurs:
- marriage or divorce;
- birth, adoption, or death of a child;
- death of a spouse or partner;
- change in desired beneficiaries;
- death of beneficiaries, executor(s), guardians, or trustees;
- purchase a new home or real estate;
- sale of a property previously included in your will;
- birth or adoption of grandchildren, or raising grandkids;
- a move to another state, which can have different laws;
- law changes around estate taxes; or
- significant changes to your financial situation (income, value of assets).
5. Safeguard and share your wishes and your estate plan.
It’s also a good idea to put all the documents in a safe place and tell someone where to find them. “I know someone who put her important papers in a safe deposit box—but forgot to tell anyone where it was located. That left the family scrambling to find the paperwork they needed,” Winston says.
She offers these suggestions:
- Give your local hospital and primary care physician copies of your living will and health care power of attorney (not just your family).
- Give your executor(s) a list of all your accounts and records.
- Review beneficiaries once a year, and your will or trust at least every three to five years.