What is estate planning? 4 Key Things to Know

By: Scott Sturgeon, JD, MBA, CFP®

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On the surface, estate planning might seem like one of those topics that isn’t always the easiest or most exciting to address. You’re probably not going to be bring up at the dinner table how you had a fantastic trust drafted that is everything you ever dreamed it could be (probably because it’s highly unlikely you’ve ever dreamed about estate planning to begin with).

Ensuring that you have a properly drafted and implemented estate plan is something that every individual and family should address. Rather than think about it as purely something associated with death however, instead view it as a way to ensure that not only is your family taken care of should something happen to you, but that your wishes for your assets are fully carried out both while you’re living and after you pass away.

Starting with The Basics

A good way to view estate planning is that it’s all about the four ‘rights’. The right assets, to the right people or organizations, at the right time, in the right way. Since your family, relationships, and your financial life in general are unique to you, your estate plan needs to be created so that it reflects your individual needs. A newly married couple with their first child on the way is likely going to have a very different estate plan than someone who has grown children and is near retirement. Even two sets of retirees may have drastically different plans. One may have several children while the other has none, or perhaps both couples have multiple children, but are unsure of who should administer their estate when they die or who should make major medical decisions if they were to enter a coma or become incapacitated. This is just scratching the surface on how complex and custom an estate plan can be as it truly needs to reflect the people for which it’s written.

The four ‘rights’ are a helpful framework to think about this need for customization because who receives the right assets at the right time in the right way is very specific to you. Your objectives for an estate plan may even be drastically different from your spouse! For that reason it’s important to address your four ‘rights’ when initially thinking about what you want your estate plan to look like.

The Right Assets for your Estate Plan

This is a common theme among many of these blog posts, but it’s one that can’t be said enough. It is almost impossible to compare your financial situation to someone else without doing a side-by-side analysis of your comprehensive financial plans. When you’re creating your estate plan then, it’s critical to ensure the unique composition of your assets is taken into account. 

For example, if you have $300,000 in a 401(k) or IRA and were to pass away tomorrow, it might make sense to designate your spouse as the primary beneficiary of the account, but then who should be the contingent beneficiaries? If you and your spouse have minor children (under age 18), then should they have your IRA or 401(k) left to them if your spouse were to pass away as well? Probably not, since minor children aren’t allowed to inherit an IRA directly, so the account would have to be managed by a custodian or a trust until the child turns 18. Who then would have control over that trust to ensure your kids are taken care of? This is just one example of how complex an estate plan can be and that making sure your assets are designated properly and given a specific purpose is so important.

The Right People for your Estate Plan

Who is going to receive your assets can sometimes be a very simple choice, but other times can be more complicated than you might initially think. Should your children receive your assets outright when you pass away? Will they be capable of responsibly managing a large inheritance? What if you don’t have children? Should you donate a portion of your overall estate to a charity? Who is going to handle the typically onerous and difficult task of settling my estate? 

Crafting an estate plan is just as much about control of who assets go to as evaluating and considering the family dynamics at play in receiving those assets. For example, for family members who may have substance abuse issues, a well-drafted estate plan can be really important to ensuring their needs are met over the long term. In that instance, holding assets in a trust for their benefit may be a prudent approach, but what if there are other siblings that might be better serve by receiving assets outright when a parent passes away? Navigating those types of family dynamics can be incredibly difficult, but having an estate plan that reflects the individualized needs of your family can go a long way to making things better over the long term.

The Right Time for your Estate Plan

The timing of when certain individuals or organizations receive assets can have a critical impact on the way an estate plan is structured. Should those inheriting your assets receive them immediately following your death? Or should it happen over a series of years? As part of your overall estate plan, what aspects can you pass on to heirs or organizations while you’re still living? There are a multitude of these types of questions that will dictate the ‘when’ of how the elements of an estate plan will be carried out.

For high net worth individuals with assets that may be subject to estate tax at their death, ensuring that strategies are implemented while they’re living can be crucially important for long term timing of when tax liabilities may occur. There are a variety of different types of trusts and strategies that can be implemented depending on the financial situation of the individual. 

The Right Way for your Estate Plan

Drawing your perspective of wills and trusts from the movies, it would not be surprising if you envisioned your estate plan documents being read to your descendants and heirs after you die by an attorney behind a large wooden desk in an oak paneled room. In reality, the right way for your estate plan to be carried out will depend entirely on the unique circumstances of your life. Each family’s dynamics and relationships with one another can have a drastic impact on the way an estate plan is constructed. Maybe you don’t even want family to be a part of your estate plan! Personal effects are a great example of this. Passing along personal items while you’re living that you may cherish or that have been in the family for many years can foster a lot of enjoyment and nostalgia for when you first received that item so many years ago. In this way, estate planning can be something you implement while living to really enjoy the process.

What’s right for you?

Each individual or couple needs to decide how they want their estate plan to look, but no two estate plans are the same, just like no two persons finances are the same. It’s something that has to be constructed just for you to reflect what makes your life unique. Working with a good estate planning attorney is an important part of that, but so is having an advisor in your corner who is knowledgeable not just about the process of estate planning, but the specifics of your life, financial or otherwise.

So what’s right for you when it comes to estate planning? That’s something only you can decide, but you don’t have to go it alone. If estate planning is something you’ve been putting off or haven’t addressed in awhile, consider scheduling some time with us to discuss how working with Oread Wealth Partners can help.

Curious to learn how working with Oread Wealth Partners can help in navigating your estate planning needs? Let’s talk.

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