Estate Planning in Brief: What is it?

Estate planning is the process of arranging for the orderly handling and administration of your affairs at your incapacity or death. A basic estate plan typically includes at least four documents: a will, both healthcare and financial powers of attorney, and an advance directive (also known as a living will).

A will is a legal document that provides for the distribution of your assets at death. A will can also name an executor of your estate and nominate a guardian for your minor children. 

A power of attorney is a legal document that nominates someone to act as your agent for your benefit in a certain context when you are unable to act. As the names denote, a healthcare power of attorney enables your agent to make healthcare decisions on your behalf, while a financial power of attorney allows your agent to do things like pay bills, access accounts, and possibly make gifts.

An advance directive (or living will) notifies healthcare providers of your end-of-life wishes, like when or whether you would want to have assistance breathing or eating in the event of a terminal illness or persistent vegetative state.

Why is it important?

1. Estate planning ensures that everything proceeds properly when you’re no longer in control. You can use a will, trust, and other estate planning documents to speak for you when you no longer can speak for yourself.
2. If you do not create an estate plan, the government will create one for you. Each state has intestacy laws that provide default beneficiaries for people who die intestate (without a will).
3. Estate planning can also preserve the value of your estate by minimizing costs associated with estate taxes and administration.

What steps are involved?

1. Take stock of what you own and what you owe. This will help you determine your net worth and whether planning measures need to be taken to minimize estate taxes. A summary of your net worth broken down into assets and liabilities can also help the executor of your estate (the person who carries out your will and wraps up your financial affairs at your death) understand the big picture.
2. Clarify your goals and objectives. Who would you want making healthcare and financial decisions for you if you were unable to make them for yourself? Where, when, and to whom would you want your assets to go upon your death? Who would you want serving as the guardian(s) of your minor children? Reflecting on these questions and understanding what your goals and objectives are will make it easier for an estate planning professional to help you create the right plan to accomplish them.
3. Consider your planning options. Do you currently have an estate plan? If so, is it up to date? Does it reflect your current goals and objectives? An estate planning professional can help you work through different options when it comes to your estate plan. For example, there may be a benefit to creating a will and a trust, or maybe you just need a will. A professional can help you understand the pros and cons of different courses of action when it comes to estate planning. 
4. Choose a plan that meets your desired goals and objectives. Make sure that beneficiary designations on non-probate assets, such as life insurance and retirement accounts, are up to date and consistent with your current goals and objectives. Dictate where your other assets will go by creating or updating your will. Consider building flexibility into your plan where possible. Circumstances can change, often in unexpected ways. The best way to deal with these changes is to establish a flexible plan. This might mean creating a trust that grants a trustee discretion over when to make distributions to your beneficiaries, or it might mean using permanent life insurance to create liquidity for paying estate taxes or accomplishing a Roth conversion at your death. 
5. Implement your plan. With the help of your advisors, take the steps necessary to actually put your plan into place. Execute the necessary legal documents to carry out your goals, including powers of attorney, advance directives, a will, and possibly a trust. Implementation may also involve the purchase of financial products, such as insurance and investments in order to carry out certain goals, like having enough survivor income or reaching a certain funding goal for your retirement. 
6. Review your plan. You should review your plan regularly (at least every two years), and any time your circumstances change (for example, you get married or divorced, you have children or grandchildren, or your wealth changes significantly).