August 2023
Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension
Estate planning is important for everyone, whether they are dead or alive. A colloquial phrase used to describe it is "getting your affairs in order" (i.e., taking the time to organize and pre-plan legal documents, financial accounts, property, and personal/medical data). Estate planning addresses three distinct events in a person's life:
- The transfer of wealth and assets after death (e.g., house, car, and bank, brokerage, and retirement accounts)
- The management of assets following incapacity (e.g., dementia) or disability
- Decisions about end-of-life medical treatment and life support
Below are five steps to get your affairs in order:
- Write a Will- A will is very important for anyone who owns property. Without one, state intestacy law determines who will receive your assets. Wills should be updated as circumstances change (e.g., marriage). Having a will prepared is a good way to establish a relationship with an attorney. Unlike a lawsuit or divorce, will preparation is a way to meet an attorney in a non-adversarial situation. Lawyers who you get to know can be a good source of referrals to lawyers with other specialized areas of expertise. Wills should be self-proving in accordance with state law. This means they are witnessed and notarized at the time of signing so it is not necessary to locate the witnesses years later at the time of probate.
- Designate an Executor- An executor oversees the settlement of a deceased person's estate. There are two primary criteria for an executor: a person who is organized and efficient and geographical convenience, if possible. Naming multiple executors (e.g., four adult children) is cumbersome and time-consuming (e.g., needing everyone's signature on documents). Many people do this, however, so as not to "show favorites." A frank discussion, instead, could avoid this dilemma. Another option is naming an attorney as executor.
- Make Plans for Dependents- Many parents postpone writing a will because they don't know who to name as a guardian for their minor children. A guardian does not have to be a family member, however, and could be a close friend. For children with disabilities, a special needs trust is highly recommended so they are not disqualified by asset tests for government benefits. Some people also include pets in estate plans; e.g., naming a "pet guardian" and establishing a trust fund for the care of pets based on animals' life expectancy.
- Designate Capable Proxies- A durable power of attorney names someone to manage financial (e.g., pay bills) and legal (e.g., sign documents) affairs if someone is unable to and a living will addresses end-of-life health care decisions. While people can use a "fill in the blanks" living will form, they may not fully understand the implications of boxes that they are checking. The person named as a health care proxy in a living will must be willing and able to be assertive about life support decisions with medical personnel.
- Understand Probate and Non-Probate Assets- Probate is the court-supervised process of identifying and overseeing the distribution of a deceased person's probate assets. Probate assets are those titled solely in a decedent's name with no joint owner and not held in trust. A will (or state intestacy laws) determine how they are distributed. Non-probate transfers include assets with named beneficiaries (PDF) (e.g., for life insurance and retirement savings accounts) and assets held in a trust or in joint ownership with rights of survivorship.
In summary, an effective estate plan that includes the five steps described above provides a framework for dealing with death and/or incapacity in later life. Don't wait. Plan your estate.
For additional information and worksheets, review the Understanding the Basics of Estate Planning fact sheet.