An estate plan — do I need it?

A common misconception surrounding estate planning is that only “wealthy” people who own large homes with manicured lawns and drive luxury vehicles need an estate plan.

However, the fact of the matter is anyone can have an estate and need an estate plan.

As you start preparing for the upcoming tax season, discuss with your trusted adviser to see what type of an estate plan is best for you.

What is an estate plan?

An estate plan is a series of legal documents that dictate how your assets will be managed during your life in the event of incapacity and disposed of after your death.

Estate planning is the process of making those decisions for the management and disposal of your estate and drafting the legal documents to effectuate your plan. Your estate consists of all the property you own, such as cash, cars, house(s), land, retirement, investment and savings accounts, clothes, jewelry and any other items of personal property.

The key advantage of having an estate plan is the power to decide for yourself how you want your estate administered. While you are alive, you are in control in choosing who inherits your estate, what they will receive and how they will receive it. You can create your estate plan in a way that minimizes or possibly eliminates the probate process (a public court proceeding), which can be costly, lengthy and lacks privacy.

You also can create your estate plan in a way that minimizes gift, estate and income tax for your beneficiaries.

Do you need an estate plan?

Yes — individuals at every age should have an estate plan that fits their situation.

A single 20-or 30-year-old just starting his or her career might only need a simple will and power of attorney designations, whereas an older, established professional or retiree also might need a revocable trust, life insurance and beneficiary designations among other things.

The more complex your situation is (kids, multiple marriages, blended families, businesses, wealth, charitable intent, etc.) the more complex your estate plan might need to be. It will look different and evolve throughout your lifetime depending on your family and financial situation.

It also should be periodically reviewed and revised whenever significant life changes occur, such as the birth or death of a family member, an increase or decrease in your wealth, or a change in marital status.

It is important to talk to and collectively work with your trusted advisers, such as your attorney, tax preparer and financial adviser when drafting your estate plan.

You not only want to make sure that your intent is clear, but also that you have planned the administration of your estate in the most advantageous manner possible for your beneficiaries and that all your estate planning documents work harmoniously together.

To help unburden your loved ones upon your death, you might want to consider naming a corporate fiduciary, such as a bank or trust company, as the executor of your estate or successor trustee of your trust, should you need one. A corporate fiduciary will carry out your estate plan in an unbiased and impartial manner, providing you with the peace of mind that your estate plan will be fulfilled as you intended.

What happens if you do not have an estate plan?

If you die without a will, you will have died “intestate.” When this happens, the intestacy laws of the state where you reside will determine how your estate will be distributed.

Your loved ones will have no control over the distribution of your property, or who will care for your minor children (if you have any) and how they will be cared for. The court, through the probate process, will make those decisions for you, which might not be the way you would have wanted.

And, depending on your situation and the type of assets in your estate upon your death, this could take years to resolve and result in costly fees and expenses.

Bottom line

Estate planning is not just for the wealthy. Regardless of your age or wealth, settling your affairs after you die without a plan in place could have a long-lasting and costly impact on your loved ones.

If you want control over how your assets are managed and distributed and want to protect your loved ones after your death, you need an estate plan. Don’t wait until it’s too late and let the state you live in dictate how your hard-earned assets are disposed of.