The Right Time to Start Making an Estate Plan

Estate planning is an essential part of securing your financial future that ensures your assets are distributed according to your wishes. Many regard it as a mere legal formality but it is more than just that. Estate planning allows you to leave your assets to your loved ones in a way that is hassle-free for them after considering the ensuing tax implications for the same.

At its core, estate planning involves several key elements: wills, trusts, and directives. A will is the foundational document that outlines who gets what after you pass away. Trusts, on the other hand, are more sophisticated tools that manage your assets both during your lifetime and after your death, offering benefits like tax advantages and avoiding probate. Directives encompass your healthcare wishes and designate who should make decisions on your behalf if you are unable to do so.

By proactively planning your estate, you create a clear, legally binding roadmap for the future. This ensures your wishes are honored and your family is taken care of, providing peace of mind for you and your loved ones. It’s about making informed decisions now to protect and manage your legacy for the future. A financial advisor can help create an estate plan according to your wishes and ensure that your legacy is protected.

But, when should a person begin estate planning? In this article, we will explore this important question along with the steps involved in the estate planning process.

How estate planning evolves with life stages

1. Early adulthood: Basic will and healthcare directives

Even if you’re just starting out, it’s important to have a basic will and healthcare directives in place. A will is the most straightforward tool in estate planning, and it’s often the first step. It allows you to specify how your assets should be distributed after your death. In your will, you can name beneficiaries, appoint guardians for minor children, and designate an executor to handle your estate. However, wills go through probate, which can be a lengthy and costly process.

You can also designate someone you trust to make healthcare decisions on your behalf if you’re unable to do so. This ensures you have access to proper care and treatment even if healthcare needs arise earlier than expected. Additionally, it makes way for seamless asset distribution per your wishes.

2. Middle age: Comprehensive planning including trusts

By middle age, you likely have more assets and responsibilities. This is the time to create a more comprehensive estate plan that may include trusts. A trust offers more advanced estate planning options. It allows you to manage and distribute your assets both during your lifetime and after your death. Types of trusts include revocable living trusts and irrevocable trusts, each with specific benefits and purposes. Trusts can help avoid probate, offer tax advantages, and provide greater control over how and when your assets are distributed. They are especially beneficial for those with significant or complex estates.

3. Retirement age: Regular updates and reassessments

As you approach retirement, it is now time to regularly update and reassess your estate plan. Changes in your financial situation, family dynamics, or health can all impact your estate planning needs. Regular updates ensure that your plan continues to reflect your current wishes and circumstances.

Comprehensive approach to estate planning with various legal instruments

Comprehensive estate planning is a holistic approach that goes beyond just creating a will or a trust. It involves a combination of legal documents and strategies to ensure all aspects of your estate are covered. This includes setting up a will and possibly one or more trusts, as well as establishing advance healthcare directives and financial powers of attorney. Comprehensive estate planning aims to minimize estate taxes, avoid probate, and ensure your healthcare and financial wishes are respected if you become incapacitated.

By understanding these tools and their differences, you can decide the best time and way to start making your estate plan. Whether you begin with a simple will or opt for a more complex trust, or you go for a comprehensive plan that covers all bases, starting early and updating regularly ensures your wishes are met and your loved ones are taken care of.

Key life events to start or update your estate plan

Responsibilities and priorities evolve with each life stage and so do estate planning needs. It is a good idea to keep estate planning in mind as life evolves. Below are some major milestones that mark the perfect times to begin your estate planning process or refine it.

1. Savings account opening

Have you ever wondered what will happen to all the money in your savings account if something were to happen to you? While you may not want to think of the worst, it may be wise to prepare for it. Consider who should inherit your funds after you are gone. You can also change the beneficiaries at a later stage. Establishing this early helps set a strong foundation for your financial planning.

2. Purchasing a home

Buying a home is a significant investment and a major life milestone. Including your property in your estate plan ensures it will be distributed according to your wishes and can help avoid probate. This is also a good way to protect your dependents against life’s uncertainties.

3. Marriage or partnership

Entering a marriage or partnership often involves combining assets or deciding how to manage them separately. Updating your estate plan to reflect these changes ensures that your partner is provided for in the event of your death.

4. Birth of children

Your responsibilities multiply as you add more members to your family. The birth of a child may thus be an important time to update your estate plan. You’ll want to designate guardians for your children and ensure that your assets are managed in a way that supports their future needs. You may also define a care plan for your children and their education in event of your untimely passing.

5. Receiving an inheritance

Inheriting money or property may leave you elated but comes with an additional set of responsibilities. Updating your estate plan at this juncture can help you integrate your inheritance with your other assets. You may further define how you want it to be handled after you.

6. Divorce or separation

A divorce or separation significantly changes your financial situation. Updating your estate plan immediately after such events ensures that your ex-partner is no longer included in your estate and that your assets are distributed based on your current wishes.

7. Birth of grandchildren

The arrival of grandchildren is another milestone that may prompt an update to your estate plan. You may wish to include provisions for your grandchildren’s future needs and education.

Need a financial advisor? Compare vetted advisors matched to your specific requirements.

Choosing the right financial advisor is daunting, especially when there are thousands of financial advisors near you. We make it easy by matching you to vetted advisors that meet your unique needs. Matched advisors are all registered with FINRA/SEC.

Click to compare vetted advisors now.

Below are the 7 steps in the estate planning process:

1. Creating an inventory of assets

Start by listing all your assets. This includes both tangible and intangible items:

1. Tangible assets: These are physical items such as real estate, vehicles, jewelry, and collectibles.
2. Intangible assets: These include bank accounts, stocks, bonds, retirement accounts, life insurance policies, and digital assets like cryptocurrency.

2. Addressing family needs

Consider the needs of your family members and dependents:

1. Life insurance: Ensure you have sufficient life insurance to provide for your family’s financial needs in your absence.
2. Guardians for dependents: If you have minor children, designate guardians who will care for them if you are no longer able to do so.

3. Establishing directives

Set up legal directives to manage your affairs if you become incapacitated:

1. Durable power of attorney: Appoint someone to handle your financial matters.
2. Medical directives: Specify your healthcare preferences and appoint someone to make medical decisions on your behalf through a living will or health care proxy.

4. Reviewing beneficiaries

Regularly update the beneficiaries on your financial accounts and policies:

1. Retirement plans and life insurance: Ensure that the designated beneficiaries on your accounts and policies are current and reflect your wishes.

5. Understanding state laws

Be aware of the laws in your state that affect your estate:

1. Estate and inheritance taxes: Understand the tax implications for your estate and any potential liabilities.
2. Community property considerations: If you live in a community property state, know how this affects the distribution of your assets.

6. Seeking professional assistance

Consider the benefits of working with professionals. Attorneys and financial planners can provide expert guidance, ensure your estate plan is legally sound, and help you navigate complex issues.

7. Regularly reassess your plan

Regularly update your plan to reflect changes in your life circumstances, such as marriage, the birth of a child, divorce, or significant changes in your financial situation. Revisiting it every three to five years is ideal.

To conclude

Estate planning isn’t just for the wealthy or the elderly; it’s a critical step for anyone who wants to ensure their assets are managed and distributed according to their wishes. Whether you’re just beginning your career, building a family, or approaching retirement, having a comprehensive estate plan provides peace of mind and security for you and your loved ones.

Use the free advisor match tool to get matched with seasoned financial advisors who can help you navigate the complexities of estate planning, ensuring your assets are managed according to your wishes and your legacy is protected. Simply answer a few questions about your financial needs, and our match tool can match you with 2 to 3 advisors suited for guiding you toward your financial goals.