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What is an estate plan and why should you have one?

If you think an estate plan is a complicated legal structure reserved for the superrich, then you’re probably not alone. A common notion of estate plans is that they are created by accountants and lawyers who set up complex structures of foundations and trusts to shield assets from taxing authorities to keep it in a family’s hands for generations. Here’s why that’s not always the case and why having a plan is probably a good idea.

Why Planning is Important

Planning for anything – your annual vacation, your monthly budget, your weekly trip to the grocery store – helps you stay on track. Planning helps you clearly identify goals and make specific decisions.

Financial planning, for example, helps you define how you’ll save and invest your money. It has an impact on your future wealth. But alas, whatever you accumulate in life will ultimately get spent – either by you or someone else.

An estate plan helps you determine who that someone else will be: your family, friends, a nonprofit you care about, etc. Fail to plan and someone else will have a say in how your money gets spent.

How Assets Pass at Death

There are typically three ways your money will pass upon your death:

  • By operation of law
    This refers to the way you title assets like bank accounts and real estate. Assets held jointly with rights of survivorship go to a surviving owner.
  • By contract
    This refers to your assets that name specific beneficiaries. Those named will get (or split) the asset. Some common forms of this are retirement accounts and life insurance policies.
  • By written declaration
    This refers to statements in writing that specify who gets what when you die. These statements are commonly called a last will and testament.

So, nearly all of your assets can be distributed by one or more of these three means. That’s why documenting your wishes is an important part of estate planning. It’s also why estate planning doesn’t need to be a complicated ordeal.

These relatively simple planning steps (titling accounts, naming beneficiaries, writing a will) can relieve your heirs of a complicated probate process.

What is Probate?

Probate is the legal process of distributing your estate. It’s typically uncomplicated. The court examines your will and works with the person you appoint to follow its instructions. But sometimes probate can be complicated.

It gets complicated when someone passes away without a will, when asset titles don’t designate a survivor, or when accounts don’t name beneficiaries. In the absence of clear instructions, the court decides how an estate gets distributed.

Following a theory of intestate succession, courts will often divide your assets following a common family order:
 

  1. Spouse
  2. Children
  3. Parents
  4. Siblings
  5. Grandparents
  6. Next of kin

So, intestate succession may result in your spouse and children sharing your estate. But it doesn’t assure the assets will be divided the way you would have intended. And probate comes with a couple other snags.

The first is that it is a matter of public record. So, all of your assets will be laid bare for any and all to see.

The second is that the court extracts a fee to settle your estate. That fee will be a percentage of your total assets. In some cases, that could be higher than the cost of some preemptive estate planning.

Why an Estate Plan Makes Sense

An estate plan makes sense because it keeps you in control. You get to decide where your money goes. You determine how much goes to each heir. And you can dictate the timing of inheritance.

Your estate plan can be as simple as titling accounts, naming beneficiaries, and writing a will. Or it can be as intricate as creating trusts that control your assets and distributes them according to specific formulas. There is no cookie cutter solution.

And just as there is no turnkey solution to estate planning, neither is there one for investment planning. Luckily, we have answers to many of the investment questions people may ask. We’re available at (800) 235-8396 weekdays from 7:30am to 8:00pm (CT). Call us.


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We are proud to serve your investment needs. Our Representatives are available to provide portfolio planning, education savings services and general investment guidance. Please contact us. We’re here to help you find the right investment solutions for you, your family and your future.

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