Defining a legacy

It's never too early to think about estate planning. By putting guardrails in place now, it will be you deciding what happens to your current and future assets, not the courts.

Take a minute to consider the following:

Who would take care of your minor children if something happened to you?
Who would you want to be making medical, legal and financial decisions for you if
you were unable?
If you own a business, who would take charge if you became incapacitated or died?
And would your family be able to get fair market value for your equity?
Who would you want to receive your assets at your death?
And what do you envision your wealth legacy to be?

With a lifetime ahead of you, it may seem as though estate planning is near the bottom of your financial ‘to do’ list. But if you don’t take time to think about your legacy and put a few guardrails in place, what happens to your current and future assets will be decided by the courts rather than you.

Need more convincing? Check out the Why You Need an Estate Plan article for more insights.

Couple meeting with an estate planning attorney

Four essential documents

At a minimum, you should sit down with an estate planning attorney to draft the following four important estate planning documents:

Will

Directs the distribution of your assets; names a guardian for any minor children; proscribes how and when your beneficiaries are to receive their inheritance; and names an executor for your estate

Durable Power of Attorney

Names an individual to act on your behalf (if needed) in legal and financial matters (for example, filing tax returns, accessing accounts, paying bills) if you became incapacitated.

Healthcare Proxy

An advanced medical directive that appoints someone to make medical decisions on your behalf if you’re incapacitated.

Living Will

Defines your exact wishes regarding what types of end-of-life medical treatments you do or do not want undertaken on your behalf.

Periodic reviews

Make sure you review your estate plan documents:

At least every 3-5 years
Whenever there is a significant change in your family or financial situation
When tax laws change

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Titled Assets

Any property you own as ‘joint tenants with rights of survivorship’ will automatically go to the other owner on the title.

Beneficiary Designations

Several large assets (such as life insurance proceeds, IRAs, 401(k) plans and annuities) transfer based on the named beneficiary rather than your will. So make sure to keep beneficiary designations current as your job or family situation changes.

Trust Documents

Control the disposition of all assets held in the trust; regardless of any stipulations in your will. Check out the Understanding Trusts page for more information about various trusts.

Prenuptial Agreements

May also define what assets a surviving spouse should receive upon your death. This document should be carefully coordinated with your estate plan to avoid conflict.

The goal is to make things as easy as you can on your loved ones by indicating how (and to whom) you wish to leave all your assets — and having as many of those assets as possible pass outside of the probate process by naming beneficiaries.

Naming beneficiaries

Beneficiary designations specifically name who will inherit a particular asset — without the need for probate. Typically, you name one or more primary as well as contingent beneficiaries. The contingent beneficiaries are merely ‘backups’ in case the primary beneficiary is unable or unwilling to accept the asset. You can name multiple beneficiaries for several types of accounts including:

Bank and brokerage accounts (such as pay or transfer on-death accounts)
Retirement accounts like IRAs, 401(k)s and Roth 401(k)s
Compensation plans like stock options and bonus plans
Life insurance policies you own and those provided by your employer
Annuities with death benefit riders

Why asset titling is important

The way you title property you own determines whether your will, revocable trust or the titling itself controls the distribution of the asset. So, anytime you make a large purchase or enter into a business arrangement, carefully consider the titling of the asset.

Joint Tenants with Right of Survivorship

Property is owned by two or more owners. When the first owner dies, the property passes directly to the surviving owner(s).

Tenants in Common

You own part of the asset, while others own parts. You control the disposition of your portion and they control theirs. So your interest passes according to your will or revocable living trust.

Tenants-By-Entirety

Spouses own and must act together in making decisions about the property. For asset protection purposes, in most states your interest passes directly to your surviving spouse.

Revocable Living Trust

Allows you to avoid probate on any assets that are titled to the trust during your lifetime. The terms of the trust dictate how the assets will transfer following your death.

Community Property

Each spouse owns half of the asset and is able to dispose of it as they like under a will or revocable living trust. (Only available in certain states.)

Sole or Separate Property

Assets that you own individually, in which your spouse has no ownership interest. Distribution at your death will be controlled by your will or revocable living trust.

Getting Started

Your situation today may be pretty straightforward, but it can quickly become more complicated as you build wealth, expand your family and accumulate assets. Here are a few simple steps to get you started:

Determine your net worth
- Use the Net Worth Statement Worksheet to identify each of your assets. Think about who you want the beneficiary (or beneficiaries) to be for each and note how each asset is titled.
Review existing agreements
- Carefully read any prenuptial agreements or divorce decrees to determine your potential benefits and obligations.
Review business and investment restrictions
- Determine what restrictions (if any) apply to your interests in the entities, and what terms govern the disposition of your interest.
Review beneficiary designations
- Examine all life insurance policies, retirement accounts and annuities to confirm the named beneficiaries and decide if they still reflect your wishes.
Meet with your advisor team
- Bring all of this information with you when you meet with your team so they can help you prepare to meet with your estate planning attorney and other advisors.