How to Create an Estate Plan

Quick Answer

An easy way to create an estate plan is to hire an estate attorney, but depending on how simple your situation is, you may be able to do some of it on your own by creating a basic will.

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An estate plan is designed to help you determine which people or organizations should receive your assets after you die. Additionally, an estate plan can lay out health care directives, guardianship for your children, power of attorney in the event that you become mentally incapacitated and more.

Even if you don't have a lot of money, it's a good idea to have at least a basic estate plan in place. Here are some steps you can take to get started.

1. Decide Whether to Get Help or Do It Yourself

Depending on how complex your financial situation is, you may need to enlist the help of an estate planning attorney to complete your plan. Even if your situation isn't super complicated, though, an estate attorney can help guide you through the process and help ensure that you include every relevant detail.

In the event that you want to set up a trust for one or more heirs, an estate attorney isn't always required, but it can be helpful if you want to make sure you do it right and don't want to spend hours researching the process. If you don't have a spouse or children, and a simple plan would suffice, you may be able to complete the basics on your own.

Take some time to consider your situation and your goals with your estate plan to determine the correct approach.

2. Make a Last Will and Testament

Your last will and testament is a legal document that communicates your final wishes for your assets. In it, you'll provide specific directions for what the executor of your estate should do with your belongings and other assets after you pass away and who they should go to.

This is particularly important if you have a spouse or children, as it helps your heirs avoid having to figure out how to divvy up your assets on their own and can also prevent infighting between your loved ones. Your last will and testament can also include guardianship for your children in the event that their other parent is dead or no longer in their lives.

There are a few different ways you can draw up a will:

  • Holographic will: For very basic situations, you can write up your will on your own and simply sign it to make it official. Keep in mind that you'll need to be very specific about which assets you want to distribute to which beneficiaries. Note, however, that not all states acknowledge holographic wills, so research your state's laws to determine if this is a good approach.
  • Will software: If your situation is a bit more complicated but doesn't require the help of an attorney, or you'd simply rather save money, you may be able to purchase software to create your will. Some options include Quicken Willmaker & Trust, Rocket Lawyer and Trust & Will.
  • Estate attorney: If your situation is complex or you're worried that you'll miss something on your own, consider hiring an estate attorney to take you through the process and draw up your will on your behalf.

When you create your last will and testament, you'll also need to name an executor who will oversee the management of your estate when you die. Talk to this person to make sure they're up to the task. If not, you'll need to designate someone else. You may also want to add an alternate executor in case the first one dies or changes their mind later on.

3. Create a Living Will

In addition to managing your assets after death, you'll also want to make decisions now about end-of-life situations, particularly if you're not in a state to make those decisions on your own. Examples of these medical directives include:

  • Do-not-resuscitate orders
  • Life-prolonging treatments, such as blood transfusions, surgery, medication and others
  • Ventilators and other artificial life support
  • Pain relief
  • Palliative care
  • Tube feeding and other administration of food and water

Once you create your living will, be sure to share it with your primary care physician, so it'll be included in your medical records for easy access to health professionals.

4. Create a Power of Attorney

In the event that you're still living but are mentally incapacitated, a power of attorney grants someone else, such as your spouse, parent or an adult child, the legal ability to make financial and medical decisions on your behalf.

Depending on what you want, a power of attorney can provide general authority to the person you choose, or it can be limited, providing authority to act on your behalf in specific situations.

Some of the decisions you may want to include in your power of attorney may be the ability to sell investments to pay for medical bills, pay other bills from your bank account, manage other financial matters and more.

In the event that you create a medical power of attorney, the person will use the medical directives from your living will to keep their decisions in line with your wishes.

5. Create a Trust

You may think that trusts are only for the wealthy, but that's not the case. A trust can not only give you more control over how your assets get distributed after death, but it can also help you avoid the probate process, a court-supervised process that makes the details of your estate a matter of public record.

Trusts can also help you protect your assets from creditors and lawsuits and reduce taxes owed by your estate and heirs. When you create the trust, you'll need to designate a trustee to manage it. This can be a family member, your estate planning attorney or a financial institution.

There are several different types of trusts you can choose from, but the main two include:

  • Living trust: A living trust is created during your lifetime, and it can be revocable or irrevocable. A revocable trust allows you to amend or even revoke the trust at any time, but it doesn't shield your assets from creditors and taxes. An irrevocable trust does provide those protections but doesn't allow you to make changes or revoke the trust after you've created it.
  • Testamentary trust: This type of trust is set up upon your death as directed by your last will and testament. Because the details of a testamentary trust are spelled out in your will, you can change them at any time while you're still alive. Note, however, that these trusts do not bypass the probate process.

Depending on your situation, you can do a lot with trusts. If you have a child with special needs, for instance, you can set up a special needs trust to ensure that your assets are used to care for them.

And if you're concerned about a beneficiary spending their money unwisely, you can set up a spendthrift trust that dictates how much your loved one can receive each year and keeps their assets protected from their creditors.

You may discuss these and other trust options with an estate attorney to ensure that your loved ones get the care they deserve.

Don't Delay the Estate Planning Process

Planning for your own death is hardly an exciting process, but estate planning is necessary to ensure that you and your loved ones are taken care of at the end of your life and after you're gone. While death may not be imminent for most people, having an estate plan can provide you peace of mind knowing that you're prepared regardless of what happens.

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