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Why is estate planning important? Here are the basics

There is an unfortunate, widespread misconception that estate planning is a subject of interest only to the wealthy.

If you don't decide who's going to be in charge and what's supposed to happen — and then arrange things accordingly — a combination of luck and state law will control your property upon your death.

Whether it involves a fortune or a modest sum, there is no way for anyone to enforce your intentions if you have not given them legal effect in the ways we will look at here.

Maybe everything will work out fine without a bit of planning. But bear in mind that families can be torn apart in jockeying for legal authority, small sums of money, or even minor household items.

What not to think

If you want your wishes to be fulfilled at your death without starting World War III, avoid the following age-old invitations to disaster:

  • "Everybody already knows who's supposed to get what."

  • "In my desk drawer is a list of my possessions and the persons to whom they should be given."

  • "I don't have much. The kids can just come in and divide it among themselves however they decide."

  • "Last year I put all my money in a joint account with my oldest daughter. After I die, she'll split it three ways with her brothers."

  • "All I have is life insurance (or 'All I have is an IRA.') My son is the only beneficiary listed on the form, but I want him to share it with his sister."

In all the often-heard statements above, people think they have their affairs in order, but they really have no estate plan. These well-intentioned folks are asking for family squabbles and other problems.

For many people, too, an important part of estate planning is seeing to it that their wishes for children or grandchildren are implemented.

This includes the choice of a guardian for minor children, as well as guidance as to how the kids should be cared for and how funds destined for their benefit should be managed and distributed. Even many people with adult children are likewise concerned about money management.

Happy couple having a business meeting with a financial advisor. They are looking at a laptop computer or digital tablet. They are an ethnic couple. They are happy and smiling.

Important people to appoint

Do you care who your personal representative will be? Somebody must be given responsibility and the necessary authority to "wrap up" your affairs — pay debts, as well as preserve, gather and distribute your assets in accordance with your wishes.

This person is called an executor if you have a will, or a trustee if you have a trust. Your personal representative should be a trustworthy person (or bank) with common sense, good judgment and the fairness of a referee.

The personal representative may hire lawyers, accountants and other professionals with estate funds for assistance, but fees and other costs can be saved if the personal representative and/or family members are able to do some of the "legwork" themselves.

If you don't appoint someone

Without an estate plan, your "wrapper-upper" will be chosen by the court, and might not be the person you would have wanted. Sometimes, family bickering develops over who should be appointed by the judge. Often, a neutral lawyer is appointed, and must be paid with funds you leave behind.

Doing it yourself

Before examining the tools of estate planning, a word about "doing-it-yourself" is in order. A great deal of self-help is possible by the lay person who takes time to educate him or herself. But people do need attorneys in most estate planning, probate and other legal situations — at least for a consultation, or to answer some questions.

Of course, not all "do-it-yourselfers" are doomed to failure, but they take a substantial risk of overlooking a potential "complication" that would be obvious to an attorney.

Yes, will-preparation software and online services can produce adequate results in simple situations. Often, however, these approaches don't fully deal with the particular details, contingencies and very specific issues that are likely to be critically important to your family.

Some clients use software programs just to learn a little and "get something on paper" before consulting a lawyer. This is a fine idea.

This content was created in partnership with the Financial Fitness Group, a leading e-learning provider of FINRA compliant financial wellness solutions that help improve financial literacy.

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