It’s not unusual to hear about how important it is to plan your estate, so when you pass away, your assets and property can be distributed according to your wishes. Navigating what exactly an estate is and what an estate plan consists of can be confusing, especially for people who haven’t really thought about these questions before.
Learning about what your personal estate consists of and making decisions about how you would like it to be distributed after you pass away can be beneficial in many ways.
This post takes a closer look at estates and estate plans and offers some answers to common questions about them.
What is an Estate?
Everyone has an estate. An estate consists of all your assets, which includes property and possessions; interests, entitlement to property (basically your right to possess and use a property); and legal rights.
If you don’t have a plan for what happens to your estate when you pass away, your estate is distributed to surviving family members (if there are any) according to your state’s laws.
If you want to control how your estate is distributed and to whom, you need to indicate your wishes using a Last Will and Testament. After you pass away, your Last Will will be executed through a process known as probate.
You can choose to bypass the lengthy probate process for some assets by creating a Revocable Living Trust for high-value assets such as jewelry, bank accounts, and real estate that you might want your beneficiaries (the people you choose to receive your assets and property) to receive as soon as possible. Essentially, with a Living Trust your beneficiaries will probably only have to wait a few weeks instead of months or even years to receive their gifts.
You still need to create a Last Will for the property and assets you don’t include in a trust.
What Makes Up an Estate?
Your estate is made up of your assets (things that you own that hold monetary value. Common assets in an estate plan include:
- Property (real estate)
- Businesses and investments
- Personal property (such as jewelry, antiques, artwork and electronics)
- Life insurance
- Taxable death benefits from pensions and annuities (generally used as an income stream for retirees)
It’s important to note that while you must consider your assets when estate planning, you must also consider any debts that you might have, since your assets are usually used to cover any of your debts before they can be distributed.
For example, if you have $20,000 in debt, and $100,000 in assets, your assets will be used to cover the debts that you owe, meaning you are left with $80,000 to distribute to your beneficiaries.
How Do I Plan My Estate?
The actual process of planning your estate can be lengthy, but as long as you take the time to be organized and thorough it doesn’t have to be difficult. Here are some general steps to help you start planning:
- Set your goals for estate planning. Begin with making a list of your personal wishes and goals, like who you want to receive a certain item or if you want to leave any gifts to charities.
- Document your assets and debts. Ensure you know where you stand financially so that you can make sure you have enough to cover any outstanding costs that remain after you pass away.
- Select individuals who will take care of your wishes (such as an executor, trustee, etc.)
- Consider your medical care preferences (such as if you want palliative care, when/if you want to be resuscitated, etc.) and indicate those wishes in a Living Will.
- Consider which documents you need in your estate plan (such as a Last Will and Testament, Revocable Living Trust, Power of Attorney, and/or Health Care Directive.)
More detailed information regarding estate planning can be found in our estate planning guide, or if you want more specific information for your situation, we also have estate planning guides for singles and married couples.
Can I Change My Estate Plans?
Yes. What is included in your estate and who you want to take care of your wishes can (and most likely will) change over time. Your estate planning documents should be reviewed following major life events, such as:
- Birth or adoption
- Selling or acquiring real estate
- Selling or starting a business
- When someone in your estate plans passes away (a beneficiary, your executor, etc.)
Once you know what your estate consists of, you can begin the process of estate planning. Taking the time to be thorough and detailed with your documents will help make the process easier, especially if you need to make changes later on. Since we can’t predict the future, it pays to be prepared by planning ahead.
Have you reviewed your estate or started estate planning? Let us know in the comments!