Why everyone needs an estate plan (not just the “wealthy”)

Many people think they need a sprawling country mansion to require an estate plan, but the term estate actually refers to anything you own—your house, your car, even your grandmother's beloved dining room table. No matter how much money you have, whether you have children or a spouse, estate planning should be part of your overall financial strategy.

Estate planning can give you peace of mind while you're alive and help protect your loved ones after you're gone. Here are a few reasons why estate planning matters, and why you should make an estate plan for yourself and your family.

Estate Planning Helps You Get Organized

Estate planning is more than just directing where your financial assets end up after your death. Getting organized with the right documents can help you think through all aspects of your estate and identify which decisions need to be made and how to get help if needed.

Typical documents to prepare as part of your estate plan include:

• Will: This legal document specifies, among other things, who will be the executor of your estate and how you want your assets to be distributed. A will can also designate your choice of legal guardians for your children, who will be trusted with their financial oversight, and what age they'll receive their inheritance.
• Financial power of attorney: If you become incapacitated by illness, injury or disability, a power of attorney gives someone else who you trust the ability to make financial decisions on your behalf.
• Healthcare power of attorney: This document lets you choose someone to make life-and-death healthcare decisions on your behalf, such as end-of-life care, life-prolonging treatments, or Do Not Resuscitate orders. Requirements for powers of attorney are different in each state.
• Life insurance: If you own any life insurance policies, you should organize the documents in a way that your loved ones can find them with the rest of your estate plan, along with information about designated beneficiaries.
• Digital Asset Information: Do you want to share passwords for your social media accounts or email addresses, or leave a final message to your online friends? Any of your wishes for how to handle your digital assets and online life can be shared with your loved ones as part of your estate planning.
• Final Letter: You can write a letter to your family and friends where you explain the choices you made in your will, offer any personal wishes, or just leave one last message of love.
• Executor or trustees: When you set up your estate plan, you should choose a trusted person to serve as executor or trustee of your will. This is the person who makes sure the estate gets distributed according to your wishes. Your executor or trustee doesn't have to be a professional or an attorney; they can be a trusted family member. Or you can hire professional trustees from a bank or law firm.

Estate Planning Makes Your Final Wishes Clear

One of the most important parts of an estate plan is the will. A will is a legal document that specifies your final wishes for certain important matters, including:

• Who inherits your house?
• How should your money be distributed among multiple children or family members?
• Do you have any precious family heirlooms or items of sentimental value that you want someone to have?
• Do you want to designate a donation to your church, religious organization, or a favorite charity?

A will can help you make all of these wishes clear and speed up the process of distributing your assets to your loved ones. If you have children, writing a will also gives you the power to name a legal guardian for your children in case both of their custodial parents die.

If you die without a will, your estate will be controlled by the laws and courts of your local state. Not having a will can make the process of distributing or giving away your assets slower, more complicated, and more costly.

A lawyer can help you write a will, or you can write a will for yourself, using templates from online services. Inheritance laws are different depending on the state, and every person's finances and family situations are different, so some people might need more help than others with writing a will. Many estate planning attorneys will offer a free consultation to talk about your overall needs and decide what level of help is right for you.

Estate Planning Helps You Choose Your Beneficiaries

Another part of the estate planning process is it encourages you to name or update the beneficiaries on your accounts, such as life insurance accounts, retirement savings accounts, and other financial accounts. The beneficiary is the person that you choose to receive proceeds and manage the account in case of your death. For many married people, the beneficiary of their financial accounts is often their spouse. But you can also choose other people to be beneficiaries, and some accounts let you choose to give percentage portions of your assets to multiple beneficiaries.

Hopefully you already have beneficiaries set up, but if not, estate planning gives you a chance to review your beneficiary choices and make changes if needed. For example, in the years since you first set up your retirement savings account or purchased life insurance, have you gone through a divorce? Have your children reached adulthood? If you still have a life insurance policy set up for a former spouse to receive the benefits in case of your death, and you would rather have that money go to your adult children, you should make those changes now.

Estate Planning Helps Protect and Improve Your Finances

By going through the estate planning process, you can also help improve your overall financial situation. 

Here are some relevant questions:

• Do you have life insurance? Especially if you have children, you might want to purchase an adequate insurance policy to provide cash for your family in case of your death. There are a variety of insurance types available for every budget and situation, so it’s best to consult with an insurance professional to determine what’s right for you.
• What do you want to save for? Are you saving enough for retirement? Do you want to buy a home in a few years, and are you saving for a down payment? Is your house on track to be paid off in time for retirement? Thinking about your long-term financial goals can be part of the estate planning process.
• Are you a small business owner? Having an estate plan can ensure business continuity during a crisis and a smooth transition to new ownership in case you die or are disabled and unable to work.

Estate planning doesn't have to be time-consuming and complicated. People who have complex family situations (such as multiple children with different ex-partners) might need more help than others in writing a will and thinking through the financial and legal implications. Talk to a lawyer if you want professional help to write a will and make a more detailed estate plan.

Creating an estate plan gives you control over your assets and saves cost, but most importantly, it's a considerate way to ensure your wishes are carried out in your absence.