Estate Planning: Securing Your Legacy and Protecting Your Loved Ones

In today's complex financial landscape, estate planning is a crucial component of comprehensive wealth management that often gets overlooked.

According to a Schwab 2024 survey, only 33% of Americans have a will or living trust in place, despite its importance in protecting assets and loved ones. For affluent individuals, the stakes are even higher, with proper estate planning playing a vital role in preserving wealth across generations and ensuring your wishes are carried out.

This guide will help you navigate the key components of a robust estate plan, providing you with the knowledge to make informed decisions about your legacy.

Key Components of a Comprehensive Estate Plan

1. Last Will and Testament

A will is the cornerstone of any estate plan. It outlines how you want your assets distributed after your death and can name guardians for minor children. Without a will, your estate will be distributed according to state laws, which can be an expensive and timely process, and the outcome may not align with your wishes.

Tip: Review and update your will periodically, especially after major life events such as marriage, divorce, birth of children, or significant changes in assets.

2. Trusts

Trusts can be powerful tools in estate planning, offering benefits such as:

• Avoiding probate

• Providing for minor children or family members with special needs

• Protecting assets from creditors

• Minimizing estate taxes

Tip: Revocable living trusts are the most commonly used trust for estate planning.  They allow you to maintain control of your assets during your lifetime while providing for seamless transfer upon your death. A pour-over will, coupled with a trust, will direct assets held in your name at death into your trust for management and distribution.

3. Living Will and Healthcare Directive

A living will, also known as an Advance Directive, or Medical Power of Attorney, describes your wishes for end-of-life medical care. This document provides clarity and guidance to your family and healthcare providers in difficult situations and designates a trusted individual who can make life/death decisions if you are incapable of doing so.

Key Statistic: According to Schwab’s 2024 High Net Worth Survey, only 23% of respondents have a living will in place.  For those that don’t, most commonly the reason stated is lack of awareness.   

4. Durable Power of Attorney

This legal document allows you to appoint someone to manage your financial affairs if you become incapacitated. Without it, your family may need to go through a lengthy and expensive court process to gain the authority to manage your affairs.

Tip: Choose someone you trust implicitly and who has the skills to manage your financial matters effectively.

5. Beneficiary Designations

Many assets, such as life insurance policies, retirement accounts, and certain bank accounts, pass outside of your will through beneficiary designations. Reviewing and updating these designations is crucial to ensure your assets are distributed according to your current wishes.

Tip: Coordinate your beneficiary designations with your overall estate plan to avoid unintended consequences.

6. Digital Asset Plan

In our increasingly digital world, it's important to have a plan for your digital assets, including social media accounts, cryptocurrency, email, online financial accounts, and the necessary usernames and passwords. Provide clear instructions on how these assets can be accessed and how they should be handled after your death.

Tip: Without a clear plan for these assets, or incorporating them into your estate plan, after you are gone these assets may simply disappear.  Make sure you provide the necessary information to a trusted individual. 

7. Tax Planning

For high-net-worth individuals, estate tax planning is a crucial component of estate planning. Strategies such as gifting, charitable donations, and certain types of trusts can help minimize estate taxes and preserve more of your wealth for your heirs.

Tip: Stay informed about changes in estate tax laws, as these can significantly impact your planning strategies.  Above all, speak to  qualified professionals who can help you create a tax and estate plan suited to your circumstances.

Approaches to Creating an Estate Plan

When it comes to creating an estate plan, there are several approaches you can consider, each with its own advantages and potential drawbacks:

1. Do-It-Yourself (DIY): This approach involves using online resources, books, or software to create your own estate planning documents. It's cost-effective and allows you to work at your own pace. However, it comes with significant risks, including potential errors or oversights, and may not adequately account for complex situations or state-specific laws. While suitable for very simple estates, it's generally advisable to have a legal professional review your documents to ensure accuracy and completeness.

2. Online Legal Services: These platforms offer a middle ground between DIY and traditional attorney services, providing document templates and basic guidance. The process is often more affordable and faster than working with a lawyer, with some services offering attorney guidance for an additional fee. However, without direct attorney involvement, personalization is limited, and these services may struggle to address complex estate planning situations adequately, potentially leaving gaps in your plan.

3. Hiring an Estate Planning Attorney: This traditional approach involves working directly with a legal professional specializing in estate planning. It offers personalized advice tailored to your specific situation, comprehensive coverage of complex issues, and ongoing support as laws or your circumstances change. While more expensive and time-consuming than other options, it's often the most prudent choice for high-net-worth individuals or those with complex family or financial situations, ensuring your estate plan accurately reflects your wishes and protects your assets.

Choosing the Right Approach for You

The best approach for creating your estate plan depends on several factors:

• Complexity of your estate

• Your comfort level with legal matters

• Budget considerations

• Desire for personalized advice

Bottom Line: For most affluent individuals, the complexity of their financial situations and the potential tax implications often make working with an experienced estate planning attorney the most prudent choice. However, whether it’s working with a traditional law firm or utilizing an online service with access to an attorney licensed in your state, it is advisable to consult with a professional when creating and maintaining your estate plan. 

Conclusion: Securing Your Legacy

A well-crafted estate plan is more than just a set of legal documents – it's a reflection of your values, a protection for your loved ones, and a legacy of your life's work. By understanding and implementing these key components, you can ensure that your wishes are honored, your loved ones are protected, and your legacy is preserved.

Estate planning can be complex, especially for affluent individuals with substantial assets. Working with an experienced estate planning attorney, in coordination with your financial advisor and tax professional, can help ensure your estate plan is comprehensive, up-to-date, and aligned with your overall financial strategy.

Remember, estate planning is not a one-time event. Periodic reviews and updates may be necessary to ensure your plan continues to reflect your wishes and adapts to changes in your life, your assets, and the law.

Stay tuned for our next post: "Insurance Planning and Risk Assessment: Safeguarding Your Wealth and Future" where we help you navigate the complexities of insurance planning and risk assessment, ensuring you’re well-protected for long-term financial security.

Tad Jakes, CFP®, EA, ECA