Your estate is the collection of everything you own — money, property, and other personal belongings. No matter how much you own, those things will need to go somewhere after you pass away. That’s where estate planning comes in.
Estate planning allows you to prepare for what happens to your estate when you pass away. Many people feel that an estate plan is only for rich people, but that isn’t the case. If you own anything of value or if you have dependents who need to be cared for if you were to pass unexpectedly, you should have a plan.
Importantly, an estate plan also describes the kind of care you want should you become incapacitated (unable to care for yourself), and who will handle your affairs if you can’t. This is an important thing to plan for no matter how much money you have.
What is an estate plan?
An estate plan is a collection of legal documents that lays out your intentions and expectations for two general situations:
What happens to your assets after you pass away
What happens when you can no longer take care of yourself or your estate
Your estate is the collection of everything you own. That includes cash, investments, real estate, business interests, and any other personal property. When you pass away, all of those assets need to go somewhere. An estate plan lays out who gets what.
Just as importantly, an estate plan explains what you want loved ones and caretakers to do if you become incapacitated and can no longer take care of yourself. That covers health care, long-term care, who will manage your finances, and who will look after your children if necessary.
Unsure why it’s necessary to plan for becoming incapacitated? Consider that according to the U.S. Centers for Disease Control and Prevention (CDC), two in five Americans age 65 and older live with a disability, which can affect their day-to-day lives. More than half of Americans aged 65 and older also suffer from Alzheimer’s or a related form of dementia. Even if this never affects you, it’s better to be prepared.
Who needs an estate plan
Everyone should have an estate plan. If you own anything of value, you will need a plan for how to pass it on. The thing often overlooked is that a plan can make life a lot easier for your loved ones, who won’t want to be thinking about financial and legal matters as they grieve and handle your funeral arrangements.
4 common estate planning myths
To help drive home the point that everyone should have an estate plan, let’s dispel some common myths that exist around estate planning.
Myth 1: I’m young so I don’t need to worry about it
Even someone who’s 30 will probably have multiple bank accounts, a retirement account, debts, and personal property that needs to go somewhere should they die. It’s frightening to think about your own death, but life is unpredictable and it’s a lot easier for your loved ones if you create a plan before you die.
In some cases, you can also save money by creating your plan now. For one, a life insurance policy will be significantly cheaper when you’re young and healthy than when you’re in your 50s or 60s. Including a life insurance policy in your financial plan early can help save you trouble later on. You can clearly see that in this breakdown of life insurance costs.