What Is Estate Planning and How Do I Get Started?

Ever watched the track and field races during the Summer Olympics? One riveting event is the relay—when a team of runners works together to win. And the symbol of their teamwork is the baton, which they hand off seamlessly from one runner to the next. Olympians know if they drop the baton, the race is as good as over!

Estate planning is the legal and financial process of passing the baton to the next generation. It’s making sure that responsibility and wealth are transferred to the right people in the right way. You don’t want the handoff to be sloppy. You want this process to be smooth and controlled—just like those world-class athletes executing their handoff!

Estate planning might feel scary, overwhelming or simply boring. But we can guarantee you’ll feel more confident about your future after you’ve made and communicated these decisions to the people you care about most. And we’ll help you get there. You got this!  

What Is Estate Planning?

Estate planning is the process of deciding what will happen to everything you own after you pass away. It involves creating binding, legal documents to make sure your wishes are carried out.

Your estate plan also clearly delegates authority to people you trust to make medical, financial and legal decisions for you if you can’t.

Estate plans aren’t just for old, wealthy people. Every adult needs an estate plan—because you can die at any age! Yay! Okay, not a fun thought, but . . . it allows you to remain in control of what you own, and if you’re an adult, we’re betting you own at least something—and hopefully many somethings. If you die without a plan in place, the state gets to decide what happens to those somethings. And your family could spend months or years in probate court, instead of simply weeks.

Understanding Estate Planning

If the word estate conjures up images of Downton Abbey, you’re not wrong—that’s definitely an estate. But you don’t need to have a scullery maid on staff to have an estate. Do you own a 1999 Honda Civic? You have an estate! Do you own an Xbox Series X? You have an estate! To define estate in the context of estate planning, estate simply refers to what you’re going to leave behind, no matter what it is. We’re talking assets (the stuff you own that has monetary value), like houses, cars, jewelry, investments, coin collections, etc.

Your estate plan covers who gets your stuff, how they get it, what happens to you when you die or become disabled, specifics about your medical wishes, and who takes care of any kids or pets.

Your estate plan should include:

• A will or living trust
• A letter of instruction
• Financial power of attorney
• Medical power of attorney
• Living will (maybe—more on that later)
• Beneficiary designations (that’s fancy law lingo for who you’re giving your stuff to)

Why Is Estate Planning Important?

If you’ve experienced the death of a loved one and been part of the process of what happens after, you already know how important it is to have a good plan in place. If your loved one didn’t have a good plan, then you really know. But for those who haven’t experienced this yet, we’re here to tell you: Get this done.

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If you die without a plan in place, your family will have to make important, difficult decisions while they’re overwhelmed by losing you. Also, if you haven’t set up a will and beneficiaries, the state will decide who gets what, and it will take a lot longer. Plus, if you don’t assign a medical power of attorney, your family could have to make hard decisions about your end-of-life care—and you might not like the decisions they make.

If you own a business, planning what happens when you die is especially important. You’ve got employees who depend on your business and need it to survive!

So, it’s pretty clear estate planning is important.

And by the way, an estate plan is more than just a legal chore. Take this as an opportunity to think about your legacy. If you have children, how do you want them to remember you? Are there any special instructions you’d like to have carried out at your funeral? Who do you want to bless with your wealth? At the end of the day, it’s not about protecting your stuff. It’s about using your wealth and possessions for good.

What Are the Benefits of Estate Planning?

This is one of those things where you don’t really get the direct benefit. Except for end-of-life directives, like a living will or medical POA, much of the work you’ll put into your estate plan will be for others—not you.

But think about it: You will get the peace of mind knowing you did everything you could to make your passing easier on your loved ones.

A well-crafted plan can hand down your stuff while sidestepping avoidable estate planning costs, like taxes, court costs and legal fees. Nobody wants this: Hey guys, I’m dead. Here’s my house. Well half of it—the other half goes to the State of Arkansas. Enjoy living in the master bedroom and office after 13 months of probate. That’s right, there’s no bathroom—that went to the lawyers in legal fees.

That’s an exaggeration, but still, your estate plan can help your loved ones spend as little time as possible in probate court and avoid taxes and fights over who gets what. You could singlehandedly keep your family together or tear them apart! It’s happened.

And while generally people don’t find joy in thinking about being dead, you could find some fun in deciding who to bless with your earthly goods. Who do you think would just love to have your old vinyl collection? Who could really put your investments to good use?

Jack Benny, one of America’s great comedians, set up a bequest for his wife to receive a single red rose every day after he died—just an idea.

Do You Need an Estate Planner?

Like we mentioned earlier, you don’t have to have maids and butlers to have an “estate.” However, if you do own a palatial house with a stable and tennis courts, you may need a lawyer to help you figure out estate planning law. But if you’re Joe Smith and don’t have to choose between the Lamborghini and the Bentley for your grocery run, you can probably make your own basic estate plan online. Check it.

6 Steps to Estate Planning

Estate planning has a lot of layers and details to it, so let’s break it down as simply as possible. Here are six steps you can take to start making your plan.

1. Make a list of all your assets.

Your assets are the things you own that make up your estate and contribute to your overall net worth. This includes items such as:

• Your home and real estate properties
• Vehicles
• Cash in checking and savings accounts
• Retirement and investment accounts
• Stocks, bonds and CDs
• Businesses you own
• Valuable possessions, such as jewelry, antiques and furniture

Do an inventory of your wealth, whether your estate is worth $200 or $2 million! Remember, every person over the age of 18 needs an estate plan—or at least a will—to make things easier on their family if something happens to them.  

2. Gather the documents you’ll need.

After you’ve made a list of your assets, you need to gather corresponding paperwork and important documents related to your estate. Here’s what we're talking about:

• Life insurance policy
• Long-term care insurance policy
• Housing or land deeds
• Vehicle titles
• Marriage license
• Divorce papers
• Military discharge papers
• Partnerships or business agreements

If there are usernames and/or passwords associated with any of these accounts or documents, include that information too.

All of these estate planning documents need to be stashed together in a secure place, such as a safe-deposit box or a legacy drawer. (If a digital legacy drawer makes more sense for you, try storing everything in a secure online file). Once you’ve created your estate plan documents, you’ll add these to the drawer.

Make sure the executor of your will and important family members know where to find it!

3. Have a family talk. 

Most of the time, surprises are fun—like a surprise vacation to Miami or an unexpected bouquet of sunflowers—but “Surprise! You’re my power of attorney! Please sort out my finances!” doesn’t get quite the same reaction.  

If you’re appointing someone to execute your will or serve as your power of attorney, then you need to let them know ahead of time. Sit down with your family and make sure everyone is on the same page about what will take place when you’re the star of the funeral.

A big part of estate planning is deciding who you trust to execute your will and make financial and health care decisions on your behalf. The legal word for these people is fiduciaries. It sounds like a fancy word, but a fiduciary is simply someone who’s obligated to act in your best interest. The root of the word itself comes from the Latin word for trust. It also sounds like Fido—but don’t make your dog your fiduciary!

No matter what your family status is, you need to talk with your family and friends who will be impacted by your estate plan.

• If you’re married, plan a special time to talk with your spouse about your estate. You’re teammates—so make sure that you’re working toward the same goal!
• If you’re single or newly single, you’ll want to sit down with your family and close friends to discuss your estate plan.
• If you have minor children, you need to spend some time thinking through who you’d like to choose as their guardian. If they’re old enough, involve them in the conversation so they’re not caught off guard by the decision after the fact. 

4. Figure out if you need to meet with an estate planning attorney.

Estate planning is one of those things that looks different for each person, depending on the type of job you need to get done. If you’re have a small estate and a straightforward family situation, then you’re probably fine saving some money and creating a will online—there’s no need to meet with an attorney.

But you will need to meet with an attorney if you find yourself in these situations:

• Your estate is complicated.  If your estate is Bill Gates-adjacent (or a decent size) or you have particular family concerns, you might need an expert’s help. The larger your estate, the more complicated your estate plan will be. Don’t risk your family’s financial security by making this a DIY project.
• You want to avoid federal estate tax. Depending on the size of your estate, Uncle Sam sometimes steps in and takes a portion of your wealth before it passes on to your children or the organizations you want to support. You can work with a pro to avoid estate taxes so your money serves the purposes you have in mind.  
• You need help understanding state-specific laws. Estate planning laws vary throughout the country, so working with a knowledgeable local attorney will help you make good decisions—especially if you have assets in various states.

If you’re looking for a good estate planning attorney, ask around. Talk to your financial advisor. Get a referral from your tax pro. Ask your parents. Read online reviews. Then, get an appointment on the calendar!

5. Start estate planning!

Okay—for all you people who love details, get ready to nerd out. If you’re more of a free spirit type, buckle down and just get it done. You’ll get through it. We promise.  

An estate plan is made up of several legal documents a lawyer typically creates and you sign. You keep copies of those documents and let your family know where to find them in case something happens to you. The basic paperwork in an estate plan usually includes:

• Will
• Living trust
• Power of attorney
• Living will
• Letter of instruction

Let’s do a quick recap of each one.

Will 

A will (or last will and testament) is a legal document that tells other people what you want done with your possessions when you die. Every adult over age 18 needs to have a will. Period. Even if you don’t have much to pass along, you’ll still save your family tons of time in probate (the legal process of sorting through your possessions after you die) by having a will in place. 

Making a will is a pretty simple process that will only take a few minutes, but the peace of mind you’ll have knowing what you want is locked in and clear to everyone concerned will last a lifetime. You can actually do your own will online. Create a legally binding will and choose your powers of attorney with RamseyTrusted provider Mama Bear Legal Forms in just 20 minutes or less!

Inside your will you’ll want to make sure you appoint an executor. This person will carry out your will, take care of the estate during probate, pay any outstanding debts, and make sure everybody gets what they’re supposed to.

When it comes to wills though, there’s a critical bit of info you need to know about: Your will does not determine the outcome of certain assets, including your retirement accounts, annuities and life insurance. Each of those plans will give you the opportunity to name a beneficiary (the person who gets your possessions when you die) for the account, and you should make sure you take it.

Living Trust 

A living trust is similar to a will except that you transfer your money, property, investment earnings and other items of value into a trust while you’re still alive. At that point, you don’t own whatever you’ve put into the trust—the trust owns it. You also appoint a trustee—someone who manages the trust and must give approval before any big changes are made. (By the way, you can name yourself—it’s actually pretty common.)

Now, setting up a trust can be expensive and add a layer of hassle to your life. Every time you want to sell something owned by the trust, you must jump through a few extra hoops and have the trustee sign off.

But if you have a large estate, a trust might be a good idea. A trust adds a layer of legal protection for your estate, and when you die, your trust doesn’t have to go through probate. Also, a trust is private, while a will is public. No one except your beneficiaries will know what you’ve given to others.

Powers of Attorney

Every estate plan includes a power of attorney (POA): a document giving someone the legal authority to make financial and/or health care decisions on your behalf. This is especially important as you age, because no one—not even your child—can access your financial accounts without prior permission.

There are two main types you need to be aware of: a medical power of attorney and a financial power of attorney. You can appoint the same person to serve as your medical and financial POA, or you can select two different people.

Financial POA

A financial POA will help you manage your money, access your accounts, or act with legal authority to manage your financial affairs on your behalf if you become incapacitated.

Medical POA

A medical POA makes decisions about your medical care when you’re unable to make them yourself. For example, if you have an elderly parent with dementia, a POA is helpful for making decisions about their care, since they’re not able to process information completely.

Living Will

A medical POA is similar to a living will, also called a health care directive. A living will explains your wishes for end-of-life medical care, such as whether or not to resuscitate you if you’re in a nonresponsive state. If you have a medical power of attorney, there’s no need to have a living will. You can simply combine the day-to-day health care decisions and end-of-life care in the medical POA. But if you have a living will, you should definitely make sure you have a medical POA as well.

6. Revisit and update your estate plan on a regular basis.

When you go through major life changes, your estate plan should too! Update your will when major events occur, including:

• Moving to another state
• Getting married
• Getting divorced
• Having kids
• Selling a business

Make it a habit to review your estate plan about once a year, whether or not you’ve had any major life changes come up. If you have a lawyer, this is a perfect opportunity to check back in with them and see if there have been any legal or tax changes that could impact your plan.

Common Estate Planning Mistakes to Avoid

Since we just went over what you should do, hopefully you can just laugh at these common mistakes. But just in case, let’s look at a few of the biggest estate planning blunders people make.

Financial Procrastination

It makes sense to put off estate planning because many of us will never die. . . said no one ever. But many of us say it with our actions!

We know, it’s just not fun to think about what will happen when you die, but like drinking enough water and eating your veggies, it’s really important. Dying without a will can create a mess. Don’t let procrastination get the better of you. Make your estate plan!

Not Keeping Your Will Up to Date

This one’s no fun. Seriously, you’ve already done the responsible thing and put in all this work. You’ve got your tidy plan all tucked away in a legacy drawer. In fact, it’s been tucked away so long it’s actually outdated now. Cousin Larry croaked, his wife got weird and remarried, and now you don’t want her getting the Revolutionary War musket that great-great-great-great-great grandpappy used to shoot a Redcoat. Don’t let this bite you in the butt. Review and update your plan every few years.

Not Telling Loved Ones What’s in Your Will

If you’re planning on leaving someone out of your will or you don’t want your husband’s crazy sister to take the kids, this one might be understandable. But it’s not a good idea to leave your family in the dark. Don’t pull a Harlan Thrombey and create a real-life example of Knives Out. Make sure to tell everyone what’s in your will so there are no surprises, and nobody can question what you wanted.

Uncoordinated Beneficiaries

There are a few assets that get their own beneficiaries named separately—things like mutual funds, life insurance and retirement accounts (IRAs and 401(k)s). Many people get confused because you can also name a beneficiary in your will for these assets.

Take a look at Sam. He named his brother Ethan on his IRA when he was a young, unmarried buck. Sam took his time finding Mrs. Right and didn’t get married until his late 30s. Wanting to be on top of things, Sam wrote a will and named his new wife, Amber, the beneficiary to his nice fat IRA and everything else. Tragically, Sam died in a car accident after only three years of wedded bliss. Even though it’s her name in the will, Amber won’t get the IRA. That will go to Ethan because the account names him and that trumps a will.

Make sure the beneficiaries on your accounts match the beneficiaries in your will!

Not Thinking Through a Well-Intended Gift

Generosity is a good thing and wanting to bless someone with your earthly goods when you pass on is usually great. But not always. Saddling someone with an inheritance they don’t want—like a business—might not be the kindest thing. You may have loved running Dave’s Bird Store, but your nephew studying for his CPA might not be into it.

When you give away your assets, it’s possible to put some conditions on the gift—like your nephew won’t get your ’67 Corvette until he turns 25. But it’s not always the best idea to do this, especially if the beneficiaries are healthy, well-adjusted adults. On the other hand, there are instances where you might need to think about putting very specific terms on a gift. Handing a large stack of money to an alcoholic or drug addict could just make their life worse.

Naming Only One Beneficiary

They say one wedding often brings on another, but how about one funeral often brings on another? Let’s hope not. But this is something you should consider when writing a will. Car accidents and other tragedies can take out more than one family member at a time. If you leave everything to your husband and don’t name anyone else, but you both drive off a cliff on your second honeymoon in Monaco, your will is useless.

Another scenario involves naming a beneficiary, but then they die before you and you don’t update your will. Naming contingent beneficiaries will fix all these potential problems.

Estate Planning 101

Let’s face it, estate planning isn’t a rip-roaring, knee-slapping joy ride. It can look daunting—it is a lot to think about, but it doesn’t have to be overwhelming or even that hard. And it can bring so much peace and satisfaction knowing you’ve done your part to help your loved ones during one of the worst times of their lives.

Make sure you don’t miss a beat when it comes to planning out what happens around your passing—grab your Complete Guide to Estate Planning today!