A Guide to Estate Planning Basics for Seniors

Estate planning is essential to ensure your wishes and goals are followed at the end of your life. We get it – it can be an uncomfortable topic to discuss. But 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.

What Is Estate Planning, and Who Needs It?

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.

What Makes up an Estate?

Believe it or not, everyone has 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?

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.

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

When it comes to an estate plan, there are four elements you want to address: Your will and trusts, a living will and health care 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.

Will and Trusts

Will

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.

What should be included in a will

• A list of beneficiaries (can be individuals or charities)
• A list of the significant assets you want to leave your heirs
• A list of your debts (mortgage, credit card debt, car loans, etc.)
• Name of your executor

Probate Court

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.

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.

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.

• Revocable living trust: A revocable trust is very much like a will, except without the need for probate upon your death. In a revocable living trust, you will be the designated trustee and can appoint a successor trustee after your passing. In your living trust, you can move assets in and out and name the heir to those assets. Since you're the trustee, you can make changes to the trust as you see fit.
• Irrevocable living trust: When you establish an irrevocable trust, you relinquish your rights to the trust’s assets and cannot be the designated trustee. This allows your heirs access to their inheritance now, instead of waiting until you’ve passed. Irrevocable trusts have tax benefits since you reduce the value of your estate. If you choose to create this type of trust, remember, it cannot be undone; hence the name “irrevocable.”
• Special needs trust: If you have an heir with disabilities, setting up a special needs trust is essential. This allows your heir to access their inheritance without negating their government benefits.
• Spendthrift trust: Let’s face it, not everyone is great with finances. If you’re worried about an heir misusing their inheritance, a spendthrift trust can protect your heir and their assets after you're gone. Spendthrift trusts are irrevocable trusts overseen by a trustee who makes payments to the beneficiary under certain terms or at specific times. For example, let’s say you have an heir who struggles with addiction. You can outline in the spendthrift trust that an allotted sum from the trust is accessible to them upon completing a treatment program. Or, perhaps they receive an allotment at age 30, 35, and then 40.

Beneficiary Designation

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.

Common beneficiaries include:

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

Healthcare Power of Attorney and Living Will

A health care 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 health care proxy. Since 1 in 3 older adults passes away with Alzheimer’s or another form of dementia,3 a health care power of attorney commonly comes into play at the end of life. It’s important to inform your health care proxy of your medical wishes, as they will be making those decisions if you are unable to.

A living will is a document outlining your choices regarding end-of-life treatment. Like a health care power of attorney, a living will only come into play when you are still alive but unable to communicate decisions regarding your health care.

Questions to consider when creating a living will:

1. What kind of medications are OK or not OK to administer to you?
2. Do you want a feeding tube if you are 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. Do you want to be an organ donor?
6. Would you like palliative care at the end of life?

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.

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, 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.

Tips for Selecting a Power of Attorney

Jim Revels, CPA, suggests selecting a power of attorney who:

• Lives near you
• Is willing and capable to serve
• Is financially responsible
• Is trustworthy
• Can be assertive if needed

How Much Does Will and Estate Planning Cost?

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.

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.

Estate Planning Checklist

Want to start putting together your estate plan but don't know where to start? Use the estate planning checklist below!

1. 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. Next, you'll want to gather any documents associated with your estate. This includes marriage certificates, divorce papers, insurance policies, business agreements, property deeds, vehicle titles, and bank account information. Any usernames or passwords associated with these assets are helpful as well. Place these important documents in a safety deposit box. Make sure your executor knows where they are stored!
   3. Choose your power of attorney and/or executor. Select your medical and financial power of attorney, the executor of your will, and any trust trustees. It can be the same person for all positions, but it is better to divide the responsibilities among a couple of trusted individuals if possible.
   4. Draft your estate planning documents we listed above. This is where you will want to consider hiring a professional estate planner or attorney if you can afford it. For older adults with many beneficiaries, lots of assets, and multiple businesses, hiring a professional to organize your affairs and draft the necessary documents will be worth the investment.
   5. Talk with your family. Informing your friends and family who will be impacted by your estate ahead of time is very beneficial. It can prevent surprises, family stress, and clarify any questions while you're still here to answer them. Make sure you inform the executor of your will of the role they will step into upon your passing.
   6. Plan to review your documents regularly. Life happens, and things change! Jim Revels, CPA, recommends revisiting your estate plans “every three to five years or after a significant life event (i.e., loss of a spouse, child, sale of a business, significant income generation, creation of a trust).” If you sell your house, business, or vehicle, you'll want to revise your estate plans accordingly. A divorce, marriage, death of a spouse, or a diagnosis of a life-threatening condition can all be reasons to review and revise your estate plans.