Estate Planning Basics:
A Guide To Developing A Financial Plan

See also:Budgeting

Among all the uncertainties in life, one thing is certain: you are going to die someday. It’s not something we want to think about, even in the back of our mind, but all providers worry about how our loved ones will survive without us.

It’s important to make sure your affairs are in order before you die in order to avoid more hardship for your grieving family.

Here are some basic estate and financial planning tips to help ensure that, when the time comes, your loved ones aren’t left scrambling to make mortgage payments or fighting for your estate in probate court.

1. Pick A Beneficiary

Have you created a will?

Do you have retirement accounts, real estate, stocks or mutual funds, life insurance policies, business assets, or a pension?

If you died today, who would be in charge of your estate?

Have you recently married or got divorced?

If so, you may need to update who the recipients of your estate will be.

2. Planning For Your Estate

If you have a will, your estate will be legally protected and bequeathed to the person of your choosing.

You can have a lawyer draw up a will or you can create one yourself, although we highly recommend you seek the services of an attorney to avoid legal hurdles in the future.

When creating an estate plan or living will, here are a few considerations:

  • Create a living will and assign a healthcare proxy. A will determines who takes possession of your assets and possessions after your death. A living will also explains how you would like to proceed should you be unable to make any decisions at the end of your life, and the healthcare proxy is the person who would make those decisions on your behalf. These decisions often involve medical procedures, pulling the plug on life support, and burial instructions.

  • Power of attorney. A power of attorney letter will give the person of your choosing the authority to handle your affairs – legal and financial – should you become unable to. Power of attorney can be assigned to a family member, friend, or lawyer.

  • Decide who will care for your children. Designate a guardian if you have children under the age of 18 who will be left alone should you and/or your spouse pass away.

  • Create a revocable or irrevocable trust. If you create a revocable trust for your heirs, it cannot be contested in court like a will. A revocable trust also guarantees that you will have total control over the assets placed into the trust. However, with an irrevocable trust, the assets are no longer legally yours or controlled by you. Like the name states, you can’t make any changes unless the trust’s beneficiaries consent. On the plus side, the assets placed into the irrevocable trust are not subject to estate taxes.

Since your life’s circumstances are constantly evolving, it is important that you review your estate plan regularly, say every 5 to 10 years and especially after life changing events such as marriage, divorce, a death in the family, retirement, the birth of children, the sale of a business, a large influx of cash, assets, or liabilities, etc.

3. Purchase or Update Life Insurance

If you have financial dependants, you likely need life insurance.

Because eligibility and rates are determined by age and health, it is important to review your life insurance policy or explore the need to purchase one when you are young and fit.

The following are some considerations when reviewing your contracts:

  • Determine the type and amount of coverage you have versus how much you need.
  • How much, if any, do you get through a benefits package at work? What happens if you resign or get laid off?
  • Do you have a cheap term life insurance policy? If so, when does it expire?
  • Do you have enough life insurance? If not, how much more do you need to cover your family’s living costs?

If you have not yet purchased life insurance and you have financial dependence, you should think about buying a policy. When it comes to term vs whole life insurance, buy the more popular and cheaper term life insurance.

Unless you’re wealthy, any insurance agent or financial advisor recommending whole life insurance as an investment is doing so because of the commission check he will earn if you buy a policy.

4. Organize Your Affairs

Create a list of all your financial accounts, their account and pin numbers, how to access them, and any relevant forms, wills, deeds, policies or certificates.

Keep a copy of this information in a safe deposit box, your home safe, and/or your attorney’s office.

5. Be Remembered

A good way to be remembered after your death is to leave a part of your estate to help those in need.

You can donate to a charity, start a scholarship program, or be creative in your giving. As Andrew Carnegie once said, "The man who dies rich, dies disgraced."

If you don’t have the money to leave behind to people other than your family, think about donating your time while you’re alive. The help you give to others can be invaluable in facilitating positive change in the world.

Finally, take the opportunity to tell your loved ones how you feel. Write letters, produce a video, keep a diary, or build a final gift, so that when you pass, your memory will live forever.

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Final Words

If you have already created a basic estate plan, make sure you review it every few years. Your life goes through changes and so do laws. If you haven’t planned for your estate, find an estate-planning attorney to help you get started. Regardless of whether you hire a lawyer or do it yourself, do it now while you’re still able, coherent, and healthy.

About the Author

Gary Dek is a personal finance blogger and former investment banker and private equity professional.