Have you heard about estate planning but have been putting it off or don’t think you need it? You’re not alone.

According to caring.com, 67% of Americans don’t have a will, and the most common reasons for not having one include “I haven’t gotten around to it” and “I don’t have enough assets to leave anyone”.

Read on to learn why estate planning isn’t just for the wealthy and goes far beyond simply creating a will.

Who can benefit from estate planning

It’s not only those with significant assets who need to think about this. Just about everyone can benefit from some type of estate planning.

For young families, a critical part of estate planning is naming guardians for your children as well as determining the best way to leave your assets to your children should you pass while they are still minors. 

If you worry about losing mental capacity as you age, a key component of estate planning is putting in place a power of attorney, which assigns someone the right to make financial decisions for you.

Even young adults who have just turned 18 can benefit from having a healthcare proxy and HIPAA authorization in place to allow their parents the ability to make medical decisions if needed.

What goes into estate planning

Estate planning can encompass a large range of topics. These are the most important items to consider:

Naming the right beneficiaries

The beneficiaries on each of your financial accounts and life insurance policies supersede anything you put in your will. So it’s important to have the right primary and contingent beneficiaries listed. And it’s critical to review these frequently to make sure no changes are needed.

Naming guardians for your children

A court will decide who takes guardianship of your children should you die while they are minors. Assigning guardians ahead of time through a document drafted by an attorney (and sometimes through a will) is the best way to make sure your voice is heard in that process. A judge will of course try to do what is best for your child, but you don’t want to leave that decision up to someone else.

Assigning power of attorney

Granting someone power of attorney means they can act on your behalf in any legal or financial matters should you become incapacitated. This can be helpful if you’re in an accident and need someone to sign documents, move money, or pay bills. But it can also be critical if you start to lose some mental capacity as you age. Having a trusted person to help in this way can ease a lot of stress.

Drafting a will

A will tells the probate court your wishes for anything that does not pass to your heirs through beneficiaries or a trust. Even if you don’t have a significant amount of assets, a will can be a catch-all in case you have forgotten to assign a beneficiary to an account. It’s also where you decide how your personal belongings will be distributed.

Deciding if you need a trust

If you have minor children, a trust can help ensure you have some say over how and when the money you leave behind is given to your kids. If you don’t leave money in a trust, your children have full control over it once they are no longer considered minors – typically age 18 or 21 depending on your state. So think about the assets you have now – your house, retirement and other savings accounts, life insurance, etc. That could end up being a lot for even the most mature young adult to manage on their own.

A trust can also be helpful if you want to avoid probate, which is a public process and can be costly and time consuming depending on your state.

Consider estate taxes

Right now the federal estate tax doesn’t kick in until an individual has over $12.92 million in assets (for 2023). So most people don’t need to worry about taxes at the federal level. There are some states however that have their own estate tax, and some with a much lower threshold than the federal tax. Massachusetts for example taxes all estates with over $1 million in assets. 

Take a look at this list to see if your state has its own tax. Depending on your situation, there can be strategies to minimize the tax owed by your estate. Talk with an attorney and tax advisor to learn about the options and decide if adding some complexity to your estate plan is worth saving some tax dollars for your heirs.

How to do it

When it comes time to put a plan in place, the first step is to review and update the beneficiaries on all of your accounts and life insurance policies. Make sure you have both a primary and contingent beneficiary listed. 

Your spouse should typically be the primary beneficiary. And if you have minor children – talk with an attorney first if you are considering listing them as beneficiaries. This is where establishing a trust can help.

An attorney who specializes in estate planning can draft all of the documents mentioned above. Many attorneys are well versed in estate tax law as well and can help you begin to think through tax planning if it’s relevant for you.

Laws vary by state, so it’s important to find an attorney who is licensed in and familiar with your state of residence. If you are working with a financial or tax advisor, they can likely make a recommendation for you.

Once you have a plan in place, it’s important to review it at least every few years. Below are some of the most common reasons you should revisit or consider updating your estate plan:

• Relocating to another state
• Having your first child or additional kids
• Marriage
• Divorce
• Receiving a large inheritance or another significant change in your assets
• Death of someone named in your documents

Final Thoughts

Estate planning can be a tough topic and can feel overwhelming, but armed with the right information and a skilled attorney, you can set your family up for success and less stress in the future.

Joe Calvetti is a CPA and the founder of Still River Financial Planning, a comprehensive, fee-only financial planning firm that specializes in working with young families and professionals. Click here to learn more about how we work with clients.

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Disclaimer: The information provided above is for educational purposes only and should not be considered financial, legal, or tax advice. You should consult with a professional for advice specific to your situation.