A Guide to Estate Planning Basics for Seniors
Here is everything older adults need to know about wills and estate planning.
Here is everything older adults need to know about wills and estate planning.
To ensure your wishes and goals are followed at the end of your life, estate planning is essential. Though it can be an uncomfortable topic to discuss, communicating your wishes and establishing a plan will give you the confidence that everything will be taken care of at the end of your life. Plus, it will save your loved ones from a lot of stress.
To get you started, we'll give you an overview of estate planning essentials, provide you with a helpful checklist and additional resources, and answer some common questions about the process.
There are several important aspects of estate planning, from wills and trusts to power of attorney. The resources and reviews above take an in-depth look at these different topics.
Estate planning is the task of establishing a collection of legal documents that outlines what should happen to your estate upon your death and while you are still alive. Each record in the estate plan has a unique purpose and directive; some even appoint a representative to make health and financial decisions on your behalf if you're unable to do so.
Contrary to popular belief, estate planning isn't for the well-to-do! Whether you have a little or a lot, we all have one thing in common: We can't take any of it with us when we pass away. Even those of us who have made a modest living should make a plan. Planning ensures that your property and wealth are transferred as you wish, and the right decisions will be made if you are unable to communicate your wishes.
Though most older adults acknowledge the importance of estate planning, nearly half of Americans over 55 do not have a will.1 Many of us think of wills as the main element of estate planning, but appointing a designated power of attorney, creating a living will, and establishing beneficiaries are all essential parts of your estate plan.
An estate plan is truly a gift to your loved ones. Without these important documents, your family may be burdened with many obstacles at the end of your life. Sometimes, if there is no estate plan to refer to, it can even cause conflict among family members. No one wants family turmoil! At the end of your life and after your passing, the documents in an estate plan give your loved ones the information they need to make sure the right decisions are made on your behalf, and your assets are smoothly passed down according to your wishes.
When it comes to an estate plan, there are four elements you want to address: Your will and trusts, a living will and healthcare power of attorney, a financial power of attorney, and beneficiaries. Addressing these factors in your estate plan allows decisions to be made on your behalf by the right people and ensures your assets are protected and distributed correctly. Let's take a deeper dive into each element.
A will, traditionally called a testamentary will, is a legal document used to transfer the estate to beneficiaries after the death of the person who enacted the will. In addition to declaring your wishes regarding your estate, another critical element of a will is naming the executor.
The executor will be the person who makes sure the wishes in your will are carried out. It is important to name someone you trust as the executor. Many older adults choose their eldest or most responsible adult child. Whomever you choose, let them know. Surprises are fun, but when it comes to being named an executor of a will, it is best to know ahead of time!
Once you've established your will, you'll want to sit down with your family and inform them of what to expect in your will. That way, everyone is on the same page, and you can address any questions.
Jim Revels, CPA, member of the American Institute of Certified Public Accountants' Personal Financial Planning Executive Committee, recommends that you “explain what your will says to your beneficiaries and why it is drafted that way while you are still alive. If necessary, attach a letter to the will to explain why certain decisions were made in the will.” This will help alleviate any confusion or tension about your decisions.
Pro Tip: “If you have property in more than one state, you need to have a will in each state that you have tangible property (homes, vacation homes, rental properties),” says Jim Revels, CPA.
We can't touch on wills without mentioning probate court. Probate is a legal proceeding wherein the court oversees the distribution of assets after a person has died. Probate proceedings can be a drawn-out process, sometimes taking a year or two, even if you have a will.
Probate expenses can end up costing up to 10 percent of your estate value, not to mention the time and stress on your family and executor to attend court proceedings. There is rarely a way to avoid probate altogether, but there are some things you can do ahead of time to make the probate process less complex, such as establishing a trust.
A trust is an entity or an agreement that allows the grantor (you) to transfer property to a trustee until your beneficiaries can claim it. In the world of estate planning, trusts can minimize taxes, put restrictions on the distribution of assets, and bypass probate.
FYI: As of 2023, you'll only have to pay estate taxes if your estate is worth $12.92 million or more.2
There are several different kinds of trusts. You'll want to consult with an estate planning professional in your state to determine which may be best for your specific estate.
Food for Thought: In your will, you can establish who will care for your furry friend if you leave one behind upon your passing. Consider leaving the person some financial support in your will to compensate for the care they'll be giving your beloved pet.
Designating beneficiaries in your wills and trusts ensures the people you want to provide for after passing are taken care of. Beneficiaries are the individuals or organizations you wish to inherit all or part of your estate. We all want to leave a legacy, and selecting your beneficiaries is part of that process.
A healthcare power of attorney is a document that is activated when you are unable to make or communicate decisions regarding your health care. In this document, you will name a person, such as a family member or caregiver, whom you would like to make decisions regarding your health care if you are unable to do so. They become your healthcare proxy. Since 1 in 3 older adults passes away with Alzheimer's or another form of dementia,3 a healthcare power of attorney commonly comes into play at the end of life. It's important to inform your healthcare proxy of your medical wishes, as they will be making those decisions if you are unable to.
Don't Forget: When it comes to estate planning, the decisions are yours and yours alone. Don't let family members, attorneys, organizations, or friends pressure you into making decisions regarding your estate that you are not comfortable with.
A living will is a document outlining your choices regarding end-of-life treatment. Like a healthcare power of attorney, a living will only comes into play when you are still alive but unable to communicate decisions regarding your health care.
These are hard questions to think about, but creating a living will may save your loved ones from having to make tough decisions regarding your medical care.
If you have both a living will and a health care proxy, the living will trumps your health care proxy. Most older adults choose to forgo a living will and instead rely on their health care proxy to make medical decisions for them if they are incapacitated. Either way, you want to inform your loved ones of your health care wishes if you are unable to make your requests known.
For a closer look at living wills and choosing a power of attorney, view the video below with our editor-in-chief, Jeff Hoyt.
Much like a health care power of attorney, a financial power of attorney is a document that is activated when you aren't able to make financial decisions for yourself. In the document, you'll designate a person to manage your finances on your behalf. If possible, you'll want to select a different person than your health care power of attorney, as it can be burdensome to make both medical and financial decisions for a loved one. Whomever you select, make sure it is someone you trust and make your financial wishes known to them ahead of time.
Jim Revels, CPA, suggests selecting a power of attorney who:
The cost of estate planning is highly dependent on the complexity of your finances. If you have an uncomplicated situation, do-it-yourself will kits can be purchased online or in a store for just $150 or so. These DIY documents are affordable, but you run the risk of completing them incorrectly, which could result in a nightmare for your loved ones once you’re gone. Alternatively, hiring a lawyer to draft a will for you could cost a few hundred dollars.
FYI: You can find an Accredited Estate Planner (AEP) using the National Association of Estate Planners and Councils' search tool.
If your circumstances are complex, paying a professional estate planner to help you organize your affairs comes at a cost. It could be $1,000 or more.4 But, if you've worked hard to build a legacy for your family and generations to come, it is worth the time and money to hire a professional to prepare the proper documents to protect your assets.
Want to start putting together your estate plan but don't know where to start? Use the estate planning checklist below!
Estate planning includes a collection of legal documents that detail who can make decisions on your behalf if you’re unable to and what should happen to your assets after your passing. A will is just one of the legal documents included in estate planning.
A financial advisor helps you develop a financial plan, including education funding, life insurance, and retirement. When it comes to estate planning, a financial advisor can supply you with the tools and checklists you need to develop an estate plan, but they will probably refer you to an estate attorney or accredited estate planning counselor to establish those legal documents.
Estate attorneys and estate tax professionals can assist in complex situations. If you have an uncomplicated, simple estate, enlisting the help of a trusted family member or friend may be sufficient in creating your estate plan.
Both a will and a trust can transfer assets to designated beneficiaries, but a trust can bypass probate court. A trust is often more expensive to set up than a will, but most professionals recommend establishing both. One is not better than the other, and it is a personal choice.
Estate planning is beneficial at any age, but individuals who are over the age of 50 with adult children should start estate planning to ensure their end-of-life wishes are met, and their heirs are taken care of in the event of their passing.