Though estate planning isn’t the most enjoyable aspect of personal finances, it’s one of the most crucial. Getting your affairs in order ensures your loved ones aren’t left scrambling over your assets or debts when you pass away.
There are a lot of misconceptions about estate planning — like, that it’s only for the wealthy or that you don’t need to worry about it until later in life. Everyone should make their wishes clear — and the earlier you can start, the better.
Below, CNBC Select looks into what estate planning includes and how you can get started on the process.
What is estate planning?
Estate planning essentially involves deciding how your assets and belongings will be managed and distributed in the event of your death or incapacitation, typically through a legal document like a will or trust.
Most people will need to determine how they want their bank accounts, investment accounts and life insurance policies allocated, as well as any property and personal possessions. Estate planning can also include assigning financial and medical power of attorney and, if you have children who are still minors, directions for their care.
Because estate planning encompasses so many things, it can be a daunting process. That’s why it’s best to not view it as a one-time action, but something you can start and revisit whenever circumstances call for it.
Estate planning resources
You can find downloadable templates for wills and other legal documents online or from software programs. While these templates serve as a good starting point, be mindful that they don’t always address specific needs and, in general, are better suited for very straightforward situations. Those with large families or complex financial holdings should consider speaking with an attorney who specializes in estate planning.
LegalZoom offers downloadable wills, living wills and financial power of attorney. Live legal advice and state-specific information is available with certain plans or can be purchased separately.
The Quicken WillMaker & Trust program has a simple-to-use interface that lets you draft basic wills, trusts, living wills and other documents and comes with a 30-day money-back guarantee. There is no live legal support but the system is updated regularly to ensure you’re abiding by state laws.
Fabric by Gerber Life is a life insurance provider that also allows users to generate free digital wills designating beneficiaries and appointing guardians for minors. You may still need to get your will notarized, but Gerber Life includes instructions for ensuring it’s legally binding.
Your estate planning checklist
These steps will help get you started before drafting a will.
Take an inventory of your assets
Your tangible assets include items of monetary value — like your home, car, jewelry and collectibles — as well as those with sentimental value, like photographs, books and mementos. Intangible assets can include bank and brokerage accounts, retirement funds and insurance policies.
Keep a list of account numbers and the market value of your tangible assets and update it annually.
List outstanding debt
What happens to your debts after you pass away depends on what kind they are and the state you lived in. Unsecured debt like credit card bills and student loans is frequently written off. But if you have debts secured with collateral — like mortgages and car loans — those assets could be seized or sold to settle the balance.
Writing down all your outstanding debts can help both your executor and your beneficiaries get a clearer picture of your estate.
Choose an executor
The executor or estate administrator is responsible for making sure your wishes are carried out. They will be compensated from the probate estate, though the specific amount varies according to the will or state law.
It’s essential to have an honest conversation with the person you’d like to be your executor so they understand what’s required and can consent to accept the responsibility. You may also want to let close friends and family know who you’ve selected so there’s no confusion later.
You’ll also want to appoint powers of attorney, who can make financial and medical decisions if you are unable to.
Name guardians
If you have minor children (or pets), decide who you want to take care of them if you die. Be sure to include a second choice, in case your first isn’t able to assume the responsibility.
As with your executor, be crystal clear with this person about your wishes and what is expected of them if they agree.
Select beneficiaries
If you haven’t already, you’ll want to name beneficiaries for your retirement accounts, life insurance policies and annuities. Many states allow you to set up transfer-on-death deeds so they can bypass probate.
Provide the beneficiary’s full legal name and relationship to you. You may also need to include their date of birth, Social Security number and additional details.
An entity can also be a beneficiary, including any charitable organizations you may want to pass assets on to.
Bottom line
Estate planning offers peace of mind to both you and those you leave behind. It’s important to organize your financial records and make plans early and revisit them as your circumstances change.
