A Guide to Estate Planning Basics for Seniors

Estate planning is essential to ensure that your wishes and goals are followed at the end of your life. We get it — end-of-life matters can be an uncomfortable topic to discuss. But communicating your wishes and establishing a plan will give you peace of mind and help your loved ones ensure that your wishes are met.

To get you started, we'll give you an overview of estate planning essentials, a helpful checklist and additional resources, and answers to common questions about the process. We also spoke with Jim Revels, a member of the American Institute of Certified Public Accountants' Personal Financial Planning Executive Committee, for his insights on estate planning.

What Is Estate Planning, and Who Needs It?

Estate planning involves assembling legal documents that dictate how your assets and medical decisions are managed during life and distributed after death. Everyone needs a plan to ensure that their wishes are respected. Investing a bit of time now can avoid confusion and conflict later.

Contrary to popular belief, estate planning isn't only for the wealthy. 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.

What Makes up an Estate?

Nearly everyone has enough to be put in an estate. Your estate includes your home, vehicle, bank accounts, businesses, investments, real estate, life insurance, possessions and any debt you owe.

Why Is Estate Planning Important?

Most older adults know estate planning matters, but they still don't have a will or basic estate plan. If you don't, rest assured you're not alone. According to a recent survey, many people say they just haven't gotten around to it.1 Without documents such as a will, health-care directive or beneficiary designations, however, your assets may not go to the intended recipients, and your medical preferences may be ignored.

Estate planning ensures that the right decisions are made on your behalf, and your assets are smoothly passed down according to your wishes without legal obstacles. Don't forget it also helps your family by giving them clarity and preserving the harmony after you're gone.

What Goals Can Estate Planning Address?

• Establish beneficiaries
• Set up a power of attorney
• Allow someone to make health care decisions on your behalf if you become incapacitated
• Minimize taxes for your heirs
• Create a will and trust
• Appoint your estate executor
• Give you and your loved ones peace of mind

The Four Important Elements of Estate Planning

Addressing these critical elements in your estate plan allows decisions to be made on your behalf by the right people and ensures that your assets are protected and distributed correctly. The National Council on Aging suggests that these are the four key elements of an effective estate plan:3

1. Testamentary will: Names the executor, beneficiaries and guardians
2. Living trust: Can help avoid probate, offer privacy and manage assets if you're incapacitated
3. Powers of attorney (POA): Includes both a medical (or health-care) POA for health decisions and financial (durable) POA to manage your finances
4. Advance health-care directive: Also known as a living will, it specifies your preferences for medical care and names a health-care proxy

Many of us think of wills as the main element of estate planning, but establishing beneficiaries, creating a living will, appointing a designated power of attorney (or two) and creating an advance health-care directive are all essential parts of your estate plan.

Testamentary Wills

A will, often called a testamentary will, is a legal document that transfers your estate to beneficiaries after your death. Besides stating your wishes about your estate, a crucial part of a will is naming the executor — the person responsible for carrying out those wishes.

Choose an executor you trust and tell them in advance. Many older adults choose their eldest or most responsible adult child. Once you've established your will, Revels recommends that you explain what your will includes to your beneficiaries. He suggests you also tell them why it's drafted the way it is. You can also attach a letter to the will to explain why certain decisions were made to alleviate tension or misunderstandings.

What should be included in a will

• A list of beneficiaries (individuals or charities)
• A list of significant assets you wish to leave to heirs
• A list of your debts (mortgages, credit cards, loans, etc.)
• Name of your executor

Probate Court

Probate is the legal proceeding in which the court oversees the distribution of assets after a person's death. It can be a drawn-out process, sometimes taking months or years. Probate also requires your family and executor to attend court proceedings, which may be difficult and cause emotional and financial stress.

Setting up trusts and designating beneficiaries on assets such as retirement accounts and insurance policies can be done ahead of time and reduce the complexity of probate.

Trusts

A trust is an entity that allows you to transfer property to a trustee who manages it until your beneficiaries can claim it. In the world of estate planning, trusts can minimize taxes, set up conditions and restrictions on the distribution of assets, and help bypass probate.

A trust is a legal arrangement in which a grantor (you) transfers property to a trustee who manages it for beneficiaries. Trusts can minimize estate taxes, set up distribution conditions and help bypass probate.

There are several types of trusts. You probably want to consult with an estate planning professional in your state to determine which best suits your particular situation.

• Revocable or living trusts: These are set up to hold and manage your assets during your lifetime. As the trustee, you can change or revoke it any time. After you die, your successor trustee manages asset distribution privately to named beneficiaries without the need for probate court.
• Irrevocable trusts: These are generally permanent, but they can be modified or adjusted in certain situations. This type of trust reduces estate taxes and protects assets from creditors.
• Special needs trusts: These protect inheritances for beneficiaries with disabilities without affecting their eligibility for government benefits.
• Spendthrift trusts: These protect assets from beneficiaries' creditors and control disbursement. It can be helpful if a beneficiary struggles with finances, because payments will be made by a trustee under specified terms.5

Beneficiary Designation

Naming beneficiaries on your wills, trusts, insurance policies and retirement accounts ensures that your assets will most likely pass directly to the intended individuals or organizations without probate delays.

Common beneficiaries include:

• Spouse
• Children
• Grandchildren
• Close friends or relatives
• Charities

Health-Care Power of Attorney and Living Will

A health-care power of attorney is a document that's activated when you're unable to communicate decisions about your health care. In it, you appoint a health-care proxy — usually a family member or caregiver — to make medical decisions if you've become incapacitated. With over 7 million Americans living with Alzheimer's, which can affect their decision-making, this can be vital.7

A living will is a legal document outlining your preferences for end-of-life treatment, including your wishes about resuscitation, feeding tubes and life support. It takes effect only if you're alive but unable to communicate your health-care wishes.

Questions to consider when creating a living will:

1. What medications do you consent to or refuse to take?
2. Do you want a feeding tube if you're unable to eat?
3. Do you want to be on life support? If so, for how long?
4. Do you want a DNR (do not resuscitate) order?
5. Would you like palliative care at the end of life?

If both a living will and a health-care proxy are in place, the living will generally guides the medical treatment, but the proxy makes decisions in situations not covered by the living will. Many adults rely on their health-care proxy without a living will, but documenting preferences is best to avoid family stress.

Inform your health-care proxy or representative of your wishes clearly to ensure that they advocate effectively.

For a closer look at living wills and powers of attorney, watch this video with our editor-in-chief, Jeff Hoyt.

Financial Power of Attorney

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, 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.

Revels suggests choosing someone who:

• Lives near you, since proximity helps with managing in-person matters
• Is willing and capable to serve
• Is financially responsible
• Is trustworthy
• Can be assertive if needed

How Much Does Will and Estate Planning Cost?

According to multiple national sources, including AARP, LegalZoom and Nolo, the cost of estate planning varies widely depending on the complexity of your finances and the documents you need. For simple situations, do-it-yourself will kits are available online or in stores, typically for $0 to $250.

DIY documents may lack the legal precision required, however, which could cause complications for your heirs. Hiring an attorney to draft a will may cost $300 to $1,000, but provides greater assurance that your wishes are legally enforceable.

For complex estate plans, including multiple assets or business interests, hiring an estate planning professional can cost much more. Your plan will likely include wills, trusts, powers of attorney and advance directives. The price typically ranges from $1,000 to $5,000, but it could be more.

Estate Planning Checklist

Want to work on creating an estate plan, but don't know where to start? Use the estate planning checklist below.

1. Make a list of your assets and debts. This includes everything that contributes to your net worth. Vehicles, retirement and investment accounts, your home and other properties, bank accounts, stocks and bonds, businesses you own, and any other valuable property should all be accounted for.
2. Gather important supporting documents. That includes marriage certificates, divorce papers, insurance policies, business agreements, property deeds, vehicle titles and bank account information. Document digital assets in your estate plan, but your login credentials should be in a separate secure document your executor can access. (Wills become public record during probate.) Safe deposit boxes may require legal access if you die, so use files instead and tell your executor exactly where you keep the documents.
3. Choose your medical and financial powers of attorney, executors and trustees. It's suggested that you divide the responsibilities among multiple trusted individuals if possible.
4. Draft your estate planning documents. Consider hiring a professional estate planner or attorney if you can afford it. For older adults with a complex estate that includes many beneficiaries, lots of assets and multiple businesses, consulting a qualified attorney ensures accuracy and legal compliance.
5. Discuss the plan with family members. Inform your family and appointed agents to answer questions and prevent obstacles down the road. Make sure you discuss the executor's role with your chosen executor, because they will step into the role upon your passing.
6. Review your estate plan regularly. Revels recommends revisiting your estate plans “every three to five years or after a significant life event (e.g., loss of a spouse or child, sale of a business, significant income generation, creation of a trust).” Other experts say to review it more often. If you sell your house, business or vehicle, revise your estate accordingly. A divorce, marriage, death or diagnosis of a life-threatening condition can all be reasons to review and revise your estate plans.