The Importance of Estate Planning


During the last ten years, studies from Merrill Lynch, LexisNexis, and others have consistently shown that a majority of adults do not have any form of estate planning set up in the event of their death. This means that the bulk of Americans do not have a written will and testament to determine how their estate is to be handled upon their passing. Estate planning should be one of the most important to-do list items for every retiree or individual nearing retirement. 

Having a written will is an integral part of retirement. It ensures that when an individual passes away, certain items are in place to properly manage the estate. This includes funeral arrangements, the listing of assets, and the treatment of their estate. An individual may dictate where their funeral will take place and whether or not they will be buried or cremated. Assets include anything of value that is in the possession of the principal (owner of the will). A written will determines how assets will be divided up between heirs or next of kin and is legally enforceable in probate court once the principal passes away. An executor must take the will to a judge in probate court in order to have the will executed, a process that can take up to six years.  

Naming a power of attorney and or an executor for the principal’s will is another important aspect for an estate owner. In many cases, the power of attorney and executor are the same person. The difference however, is that the power of attorney effectively loses their attorney-in-fact status when the principal dies and the executor obtains authority over the principal estate. Appointing a power of attorney gives full or limited authority to the appointed to make critical decisions on behalf of a living appointee in terms of finances, medical care, and signing legal documents for the principal. An executor on the other hand handles the will upon the death of the principal, which is typically brought to probate court to authenticate the final will of the deceased and value their assets. 

A principal may divert their assets into trusts to be paid out after death in order to avoid a lengthy execution of their will in probate court. In doing so, the principal can name the beneficiaries in the account and dictate how the money is to be paid out rather than an executor having the authority to act on the deceased’s behalf. Opening a trust may also have tax incentives for beneficiaries or next of kin. Typically, taxes must be paid on the deceased’s estate – these are commonly referred to as death taxes, or estate taxes.

Other features of estate planning include information about savings plans, stocks, bonds, real estate, and other investments if applicable. All of these items have to be listed in a will in order for the probate court to execute the will in its full capacity and value the estate accurately. Life insurance is another interesting component that affects an individual’s will and testament. The death benefit that is paid out on some life insurance policies can go a long way in assisting the executor cover expenses related to the deceased; such as funeral expenses, paying down debt, and other costs associated with the principal’s estate. 

If an individual does not write a will, then the division and valuation of assets is left entirely up to the state in which the principal resides. Unless in the case of real estate – which is dealt with by the state where the real estate is located – the assets of the principal typically will be divided between who the state considers to be the next of kin. Despite a majority of Americans not having an estate plan in place, such as a will, an overwhelming majority have stated in recent studies that they are willing to discuss estate planning with family, friends, and loved ones. Even so, some estate owners have claimed that they do not feel like they have someone they can trust to make decisions on their behalf either as an executor or power of attorney. 

One of the most common mistakes an individual can make is not updating their will as time goes by. As an individual ages their assets grow and that should be reflected in an updated will and testament. If they changed their state of residency that too should be taken into account, because each state has different regulations. Therefore, it is important to keep a written will updated and reflective of the principal’s state of residency. Otherwise this mistake may drag out the process of executing the will in probate court after the principal passes; or worse, the will may be deemed invalid. 

Estate planning provides peace of mind not only for the principal of the estate, but also for the beneficiaries and next of kin. Not having a will can cause numerous problems once the principal passes and may end up leading to a lengthy stay in probate court while the state divides up the assets and estate. Having a will in place provides structure so that when the principal dies the executor can properly manage the division of assets and the process of executing the will in probate court. Ultimately, the benefits of having a will significantly outweigh not having one in place. In doing so however, it is important to meet with an attorney and retirement phase experts to make sure all of the principal’s assets are accounted for as well as naming trusted individuals to serve as power of attorney (if needed) and executor of their will.