Estate planning is sometimes thought of as a luxury reserved for people with complex finances or massive wealth.
It’s easy to understand that misconception. A key focus of estate planning is to reduce the tax liability on your estate when you die.
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In 2024, however, the estate tax applies only to estates worth more than $13.61 million, so it seems reasonable to conclude that you don't need to worry about it if your assets are worth less.
But that isn’t the end of it.
There is a lot more to estate planning than shielding large estates from taxation. When you consider these other aspects, nearly everyone can benefit from estate planning.
Rather than thinking about whether or not you need to do it at all, think about it in terms of complexity. It’s not that a simple financial situation means you don’t need an estate plan, it just means your plan may be less complex.
What Does an Estate Plan Do?
The basic purpose of an estate plan is to provide instructions for how your affairs will be settled and assets distributed when you die. It also provides instructions for decision-making if you become incapacitated and can no longer make choices for yourself.
It’s important to have these plans outlined before the need arises. If you don’t, these important decisions are often left to a court. Having an estate plan ensures that you have a say in what ultimately happens to your money, responsibilities and assets.
What Should I Include in an Estate Plan If I Don’t Have a Large Estate?
Even if you don’t have a large estate or require extensive tax planning for your assets, there are several things you still want to cover with legally binding documents.
Beneficiary Designations
One of the simplest and most effective estate-planning actions you can take is to ensure you've made proper beneficiary designations on all of your financial accounts.
Take, for example, an individual retirement account called an IRA. One of the sections on your account opening paperwork asks you to list who you want the money to go to when you die. You can name one or multiple recipients and specify the percentage of the account that you want to go to each.
This selection is critical because it supersedes any other instructions you’ve given. When you die, the listed beneficiaries will receive the specified amounts. This also means it's important to update these as the need arises.
A Will
Wills outline your wishes for how to distribute your property. Again, this isn’t just for the wealthy and it isn’t just about finances. It can help prevent unnecessary stress or arguments among your family members.
Consider, for example, something as simple as family heirlooms. Those may include earrings, Grandpa’s old pocket watch or a photo album. Specify in your will who you want to receive these things. Depending on your family dynamics, you can even include your heirs in the discussion so that everyone gets the opportunity to provide their input.
If you don’t include details like that in your will, a court will decide how to divide them up during probate.
What if you own your home? Does one of your family members hope to inherit it and move in? Do multiple? What if there’s still a mortgage balance? How does that get paid? Has anyone talked about it? These are all common and basic questions. It’s best to address all of them in the will so nobody is left scrambling to figure it out under pressure.
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Can You Use AI to Write Your Will?Naming an Executor
The executor is the person responsible for settling all your affairs, such as following the instructions you provide in a will. If you don’t name one, the court will appoint one. Naming an executor gives you a chance to select the person you think will be most capable of doing the job.
There are several things to consider when naming an executor. It should be someone you trust to follow your wishes. It should be someone who you think is responsible enough to get things done.
Additionally, consider the emotional state that person may be in. Your most responsible and trustworthy child may not be the one to burden with the execution of your will if they are overcome with grief.
Again, doing this ahead of time gives you a chance to include others in the discussion and name a capable and willing person.
Estate Planning Is for Everyone
This is not an exhaustive discussion of everything you need to know or think about when it comes to your estate plan.
The point here is to highlight the fact that having a simple financial situation does not mean that you don’t need to have an estate plan at all. There are basic estate-planning considerations that everyone should address.
