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Have You Taken Care of Your Estate Planning Basics?

Key Points
  • For most people, creating a basic estate plan can be pretty simple in terms of paperwork. The hard part is forcing ourselves to do the upfront thinking.

  • Start with your financial situation and then work through personal decisions such as a guardian for minor children and powers of attorney.

  • Once you've made your decisions, it generally takes four basic documents.

Dear Carrie,

My husband and I are in our early 40s with two young kids. We know we should have some sort of estate plan, but it seems like such a chore. Any way to keep it simple?

—A Reader


Dear Reader,

You're certainly not alone in putting off estate planning. On top of our understandable aversion to facing our own mortality, estate planning conjures up images of mind-boggling detail, long hours with an attorney and high cost. But for most people, creating a basic estate plan can be pretty simple in terms of paperwork. The hard part comes in forcing ourselves to do the upfront thinking and get organized.

On the bright side, this thinking and organization is something we all should do periodically anyway. Plus, an estate plan isn't only about money; it's about protecting your kids and each other. So it really is worth the time and a bit of effort.

Start with your financial situation

Many people think an estate plan is only for the wealthy. But just because you're not worth millions doesn't mean you shouldn't protect what you have. Now is a good time for you and your husband to take financial inventory. Add up what you own, such as a home, business, bank accounts, and investment and retirement accounts.

Now subtract what you owe to get an idea of your net worth. You might be surprised at the value of what you have—and therefore motivated to make sure it passes properly to your heirs. Even if it's simply to each other and your kids, why not make it easier on yourselves and your children if the unexpected occurs?

Agree on the personal decisions

How you distribute your assets is only one part of estate planning. Equally, if not more important, is designating a guardian for your children. If you don't, and both you and your spouse die before your children reach the age of majority, the state will do it for you. You also should think about your preferences for health care if you become incapacitated, and appoint someone to communicate your wishes. Plus, you'll need someone to make financial decisions.

Prepare four basic documents

Once you know what you want to do, the paperwork can be fairly easy. I always advise consulting with an estate planning attorney, but if your finances are straightforward, your estate plan likely will be as well.

Whether your situation is simple or complex, here are the basic documents you'll need:

  • A will—This states how your assets should be distributed when you die. Equally important, it's also the place to designate a guardian for your minor children. As a part of the process you will need to name a personal representative who will be responsible for settling your estate (as well as a backup should something happen to that person). This can be a family member (often your spouse), friend, or attorney. Whomever you choose should be someone you trust to be fair and responsible in carrying out the duties.
  • A durable power of attorney for finances—Also known as a financial power of attorney, this gives someone (often your spouse) the authority to make financial decisions on your behalf should you become incapacitated.
  • An advance health care directive—This important document spells out the type of care or life-sustaining measures you want—or don't want.
  • A durable power of attorney for health care—Like a power of attorney for finances, this document designates an individual (once again, often your spouse) to make decisions for you in the event that you're unable to do so, in this case for medical issues.

To be valid, you must sign your will and also have it witnessed and signed by two other people. The powers of attorney must be notarized. You can find templates for the documents online as well as resources that can help you understand the process.

Update beneficiaries

If you have IRAs, 401(k)s and life insurance, check that you've designated your beneficiaries properly. These assets pass directly to your heirs without going through probate—which can be a long, costly, and public process. It's common to name your spouse as primary beneficiary and your children as secondary beneficiaries.

Title your assets with care

Another important step is to title your assets with care. Similar to designating beneficiaries for your retirement accounts and life insurance policies, you can add a transfer on death (TOD) for investment accounts and a payable on death (POD) for bank accounts. Assets such as a home that are held jointly with a right of survivorship also avoid probate. One word of caution: If you have a trust, be sure to check with your attorney to make sure everything is coordinated properly.

Consider a trust

A revocable living trust is another option. While a living trust takes a bit more time and costs more to establish, it will avoid probate, keeping your estate private and making it easier and faster to settle. In addition, it can provide greater control over asset distribution. It may be worth it to talk to an estate planning attorney about what it takes to set up a trust.

Keep documents accessible

Consider keeping your documents in a safe place in your home, along with property deeds, insurance policies, a list of your accounts, and contact information for your attorney or advisors. A safe deposit box isn't the best place because it could take a court order for someone to access it if it's in your name only. Also, make sure your primary care physician and your hospital have a copy of your advance health care directive and medical power of attorney. You can also have your attorney keep copies of all your estate planning documents.

Creating a basic estate plan may help you focus on the rest of your finances and become more organized. So think of it less as a chore and more as an opportunity to put your financial house in order. And, please, do it now—for yourselves and for your children.


Have a personal finance question? Email us at Carrie cannot respond to questions directly, but your topic may be considered for a future article. For Schwab account questions and general inquiries, contact Schwab.

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