While rather straightforward, an estate plan is an often-overlooked component during the financial planning process. With so much focus on investing, markets, risk, and financial returns, the estate plan usually takes a back seat to an investment portfolio. But as we highlighted in this piece here: What is Estate Consulting, the estate plan might be the most important aspect of your entire financial plan.
The component of an estate plan can be summarized as follows: a comprehensive collection of legal documents and strategies that not only outline how your assets and financial affairs should be managed during your lifetime but also provide guidance on how they should be distributed after your passing.
The exact contents of an estate plan will vary from situation to situation, depending on your individual circumstances, but there are several key components that are typically included:
- Will: A will is a legal document that specifies how your assets will be distributed after your death. It allows you to name beneficiaries who will inherit your property, designate guardians for minor children, and appoint an executor to carry out your instructions.
- Trusts: Trusts are powerful tools that provide greater control and flexibility in managing your assets. They can help protect your assets from creditors, avoid probate, and minimize estate taxes. Trusts can be tailored to suit various objectives, such as providing for children or individuals with special needs, managing assets for beneficiaries who may not be capable of doing so themselves, or ensuring philanthropic goals are met.
- Powers of Attorney: A power of attorney grants someone you trust the authority to make financial and legal decisions on your behalf in the event that you become incapacitated. This ensures that your affairs will be managed according to your wishes and can help avoid the need for court-appointed guardianship.
- Healthcare Directives: Healthcare directives encompass documents like a living will and a durable power of attorney for healthcare. They enable you to express your medical treatment preferences, designate someone to make medical decisions on your behalf, and provide guidance for end-of-life care.
- Beneficiary Designations: Many assets, such as retirement accounts, life insurance policies, and bank accounts, allow you to designate beneficiaries. It's important to review and update these designations regularly to ensure they align with your overall estate plan.
- Letter of Intent: While not a legally binding document, a letter of intent can provide guidance to your executor or trustee on matters that may not be specifically addressed by legal documents. It can include instructions regarding the distribution of personal belongings, requests for specific funeral arrangements, or information on digital assets and passwords.
Remember, estate consulting is not a one-time event. It should be reviewed periodically and updated as circumstances change, or new goals arise. Consulting with your wealth advisor can help ensure that your estate plan is tailored to your specific needs and objectives, even as life events happen.
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All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Investing involves risk, including possible loss of principal. No strategy assures success or protects against loss. To determine what may be appropriate for you, consult with your attorney, accountant, financial or tax advisor prior to investing.