Estate planning isn't just for the wealthy or "fifty-somethings." An important part of a financial plan is deciding what to do with your assets or property if something should happen to you. And it's not just about your stuff, either. Planning ahead will make it easier for those you love.
Two Good Reasons to Plan
Your family and your wishes are the best reasons to plan ahead. Even if you don't think your stuff is worthy of "estate" status, you likely have assets that will need handling. That includes bank accounts, homes, investments, insurance policies, vehicles, jewelry and even pets. If you have minor children, your decisions become even more critical.
And if you don't plan? Decisions about your property, final arrangements and even medical care (if you are incapacitated) will rest on someone else's shoulders—without your input. It could also subject your family to a lengthy process with attorney fees and court costs to sort out your estate.
You're Not Too Young (or Too Old) to Plan
It's a good idea to start estate planning as early as your 20s, especially after landing your first job. Haven't started yet? You're not alone. According to a recent survey just 32% of Americans have a will now, which is down by 25% since 2017. However, the numbers could change by the end of this year. Many attorneys report a rush on requests for legacy planning since the onset of the COVID-19 pandemic.
A good place to begin is to contact a financial consultant/advisor or an estate planning attorney. Below are some basics to help you think about your plan and have those conversations with an expert.
Choose a Will or Trust
Most people think about wills when it comes to having their wishes known. They are generally considered the basis for an estate plan because they document the division of property and assets.
Trusts are legal arrangements that give a person or persons the right to hold and manage certain assets and make sure possessions go directly to the people you want to inherit them. Here are some ways to compare two.
What is it?
Wills are legal documents that state how you want your affairs handled and assets distributed after you die. Generally, wills cost less than trusts to establish.
Trusts are a fiduciary (trusted, confidence-based) relationship in which you give a person or persons authority to handle your assets on behalf of someone else (your beneficiaries). Also called living trusts, you can change them while you are still alive.
Who's in charge when you're gone?
A will places your decisions in the hands of a judge presiding over the transfer of your estate. The executor you name will sort out the details.
You maintain ownership while you are alive. The trustee(s) carry out your wishes after you die.
How is the estate transfer
Anything left by a will goes through probate court.* However, a will can make the probate process smoother.
Trusts allow your property to go directly to your named beneficiaries without going through probate.
What should you consider if you have children?
You can name a guardian for minor children in a will.
You cannot name a guardian in a trust, but you can appoint someone to manage assets for a minor beneficiary. Execute a will along with a living trust to name a guardian.
What about medical considerations?
Wills do not include provisions in case you become incapacitated. However, you can employ a power of attorney and appoint someone to manage your affairs.
Trusts allow you to make provisions for your estate if you become incapacitated.
* Probate courts deal specifically with wills, estates, conservatorships and guardianships among other similar matters.
Sources: Will vs. Trust: What's the Difference? Investopedia 2019; Will vs. Living Trust: What's Best for You? Legal Zoom, 2019.
Name Beneficiaries for Everything
A critical way to ensure assets from investments, banks, life insurance and other financial accounts go directly to the people you want is to name beneficiaries. This also helps simplify the transferring of these assets, especially with a will and through the probate process.
In addition, keeping beneficiary information updated is important. Life changes are good times to review your beneficiaries, including marriages (or divorces), births and deaths. Also consider naming contingent beneficiaries in case your primary beneficiary precedes you in death. You should review your beneficiaries at least annually as part of your overall financial plan.
Keep Info Straight and Accessible
An important element of your estate plan is where you keep vital documents and how easily the people who will need them can find them. Consider this list when you're thinking about what to include:
Official certificates (births, marriages, divorces)
Contact information for important people/companies you work with (attorney, trustee, advisor, insurance agent, accountant, doctor, etc.)
Don't forget about your digital assets. Online bank, investment and shopping accounts will need handling, as well as your social media accounts. You'll want to think about how and who to give access and instructions. Compiling this information before starting your estate plan can also make that process easier.
Have the Money Talk
One last thing to consider is having a family conversation after developing your plan. While it can feel uncomfortable, talking about your wishes, how you came to your conclusions and who you appointed to carry them out can help your family members in the long run, especially during a time of grieving and high anxiety.
This information is for educational purposes only and is not intended as estate planning advice. Please consult an estate planner or attorney for advice regarding your situation.
The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.