Everyone needs to create some form of end-of-life financial plan, whether it's for yourself or a loved one like a parent. With these resources, learn how to talk about and plan a financial legacy.
Estate planning is the process of organizing and managing your assets in the event that you suddenly pass away. As part of the process, you determine who will make decisions on your behalf if you become incapacitated or die suddenly. Estate plans may include legal documents such as wills, living wills, powers of attorney for health care and finances, trusts and letters of instructions. Unless you leave a plan, a court could decide the guardianship of your children (if you have them), and transfer of your assets.
Estate planning will cost different amounts depending on the individual. Generally, costs of probate and attorney fees vary from state to state, and according to personal circumstances. When it comes to hiring a lawyer to write a will specifically, you can expect to pay anywhere from $300 to $1,000.
An executor is appointed by law to oversee the execution of someone’s will after their passing. The role will vary, but it generally involves gathering assets, settling debt, and distributing belongings to heirs. Decedents typically name their executors in their wills, and the judge will almost always appoint these individuals unless beneficiaries object. For example, someone may designate a sibling to oversee their will in case they die—in that case, the sibling becomes the executor.
Technically, there is no perfect age to start planning your estate. One key milestone, though, that typically sets the process in motion is when an individual or couple has a child. New parents will want to consider estate planning, in that if something were to happen to one or both of them, the child’s welfare will need to be taken into account. As your life and financial priorities become more complex with age, and your assets change, you will need to consistently review your estate plan to ensure it meets your needs.
Probate is the court-supervised process of settling someone’s estate, including authenticating the person’s will, locating assets, paying creditors, and distributing assets according to the person’s wishes. If property is distributed through a will, or a person dies without a will, then it will be probated. In some cases, individuals will not have to go through probate. This happens when assets are jointly owned, have a designated beneficiary, or are held in a trust.
At its most basic level, a will provides instructions for how to divide property and assets to loved ones after an individual dies. If you die without leaving a will, assets will pass in accordance with state intestacy laws, which means a court and judge will then decide who receives your assets. This process is dependent on the state. In New York, for example, if you die without a will, a surviving spouse inherits the entire probate estate if there are no children or other descendants.
An estate plan is a plan for managing assets and wealth during your lifetime and after you pass away. You develop an estate plan according to your financial situation, goals, and the financial situations of your heirs and beneficiaries.
A trustee is defined as someone who holds and administers property rights for the benefit of another person. That individual gives the trustee these property rights by signing a legal title. You might say that a trustee is a stand-in for someone and has specific legal authority to act on that person's behalf.
A revocable living trust—sometimes simply called a living trust—is a legal entity created to hold ownership of an individual's assets. The person who forms the trust is called the grantor or the trustmaker, and they also serve as the trustee of this type of trust in most cases, controlling and managing the assets they've placed there.
An irrevocable trust is one that generally cannot be amended, modified, or revoked once it is created. The written terms of the trust agreement—the trust's formation document—are set in stone, with only rare exceptions.
Probate is the court-supervised process of authenticating a last will and testament if the deceased made one. It includes locating and determining the value of the person's assets, paying their final bills and taxes, and distributing the remainder of the estate to their rightful beneficiaries.
An executor is a person appointed by law to oversee the execution of someone's will after they have died. This role varies depending on the person in question, but in general, it involves gathering assets, settling debts, and distributing belongings to heirs.
A beneficiary is the person(s) or entity that you designate to receive assets after your death. If you don't name a beneficiary, your assets will go to the person designated next in line by your state or by the institution that holds those assets.
The federal estate tax is collected on the transfer of a person's assets to heirs and beneficiaries after death. The total tax due is calculated by adding up the fair market values of all the decedent's assets as of his date of death, although the executor or administrator of the estate can elect to have everything valued on an alternate date six months later instead.
A codicil is a legal document that changes specific provisions of a last will and testament but leaves all the other provisions the same. You can modify, update, or even completely revoke your last will and testament at any time, as long as you're mentally competent.
Financial power of attorney is a legal document that enables a designated person to handle another person’s financial affairs. When creating an estate plan, an individual should put a financial power of attorney in place. The person giving the power is called the “principal” while the person receiving the power is called the “agent” or “attorney-in-fact.”
A last will and testament is a legal document that explains when and how your beneficiaries will inherit your property and assets. It should also name your choice of an executor, sometimes called a personal representative. This is the individual who will be in charge of settling your final affairs and guiding your estate through the probate process.
An inheritance tax is a state tax that heirs and beneficiaries who receive property from a deceased person's estate sometimes have to pay. The tax is typically a percentage of the value of what they receive, based on their degree of kinship to the deceased.
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