Estate planning is an integral part of managing assets, but many people only realize the value of a well-made plan when it is too late. Outlining a clear plan to distribute your assets after your death can prove very helpful for your surviving relatives. Losing a loved one is a very stressful time for family and friends, and an estate plan makes it easier for them to find closure.
Despite this, dying intestate (without an estate plan) is a common scenario for millions of Americans. This might be because estate planning seems like a daunting activity that requires professional advice and assistance. This is certainly true; for complex divisions of assets among many dependents, you will have to hire the services of an attorney. But if you want to keep things simple, you can plan how to divide your estate yourself.
Many resources are available for this, including online services that give people access to attorney consultation and essential estate planning documents, like wills and free power of attorney forms.
Why Every Adult Needs an Estate Plan
You don’t need to be a senior citizen to create an estate plan. Regardless of your age, if you have wealth and assets you would like to pass on, it’s time to start thinking about estate planning.
Many milestones in life can be good starting points for creating or updating your estate plan. You should start thinking about it after significant life events like:
- Getting married
- Having children or grandchildren
- Any changes in your health, for better or worse
- Acquiring any major tangible or intangible assets
It’s a pervasive myth that estate planning is only for wealthy individuals. Regardless of the value of your assets, creating an estate plan ensures that your wishes about how they will be used are respected. Estate planning protects the futures of your dependents and loved ones and your own legacy.
Drawbacks of Not Having an Estate Plan
Even though having an estate plan is extremely beneficial, only 32% of American adults currently have a will, according to a 2024 study. The same study also found that 23% of all Americans had no plans to make a will at any point in their lives.
This level of apathy toward estate planning leads to many unfortunate situations. If you die intestate, your family and friends will have to deal with the fallout of that decision while also coping with their grief.
The consequences of dying, either prematurely or from old age, without an estate plan include:
- Having your estate divided by the government according to probate law, which may not align with your wishes
- Incurring higher taxes for your beneficiaries if you live in a state with inheritance taxes
- Requiring family members to make court visits to receive their share of the estate
- Failing to provide for dependents not recognized by the state, like domestic partners or common-law spouses
Key Elements of an Estate Plan
Creating an estate plan requires foresight and thorough documentation. But it’s not just about writing down what assets will go to whom. You should also consider granting decision-making powers to a trusted family member or friend, plan how to avoid unnecessary taxes or complications in inheritance, and outline your wishes for medical care and last rites.
You will need official documents to create your estate plan, each representing a different element. Let’s take a look at the three main elements of every estate plan:
Will
Formally known as a “last will and testament,” this document outlines how your assets will be distributed after you pass away. You can also have a document called a “living will” that provides health care directives and other directions in the event you are incapacitated by a medical condition.
Trust
If you have assets that you would like to ensure pass on smoothly to your inheritors, you can set up a trust. This allows you, the grantor, to name a trustee to hold property in your name. Beneficiaries of the trust can use the assets or property held within the trust.
There are two main types of trusts: revocable trusts and irrevocable trusts. In revocable trusts, you can add, remove, or modify the assets they contain, but irrevocable trusts cannot be altered after they have been created.
Power of Attorney
Toward the end of your life, you may become incapacitated and unable to make important financial, legal, and medical decisions. To nominate someone to make these decisions on your behalf, you must name them your agent and grant them Power of Attorney (POA).
Your agent can use POA to act on your behalf, including executing your will. Many different forms of POA can be granted to agents, including:
- Durable POA
- General POA
- Medical POA
- Limited POA
- Financial POA
- Springing POA
Cost of Creating an Estate Plan
Every estate planning exercise is unique. Complex estate plans require assistance from an attorney specializing in probate law and a tax professional. Attorneys charge different rates based on their level of expertise and pricing model. The number of elements in your estate plan, such as whether you are creating a trust or granting a POA, will also affect the cost. Finally, local rates in different states lead to a variance in the price of estate planning.
Considering all those factors, you can expect to spend at least $1,500 to $3,500 to draft an estate plan with professional assistance.
How to Create Cost-Effective Estate Plans
If you have a simple idea of how you want your assets divided upon death, you can opt for a do-it-yourself (DIY) approach to estate planning. You can use various online resources, such as the American Civil Liberties Union’s (ACLU) free library of estate planning resources. This helps with essential elements of your estate plan, such as writing a will without an attorney.
You can use low-cost online services to draft your will or draw up a contract for a trust. You can also download free templates for power of attorney forms and keep your estate planning costs down.
Whether you opt for professional help or the DIY approach, you should not overlook estate planning. Don’t wait for an emergency to force your decisions. Plan your estate carefully while you are healthy, and you can enjoy the benefits of being well-prepared for difficult times.