There’s an element of excitement when it comes to planning. It could be as small as planning a family dinner with kids and grandkids, or something bigger like a European vacation or your retirement. Regardless of what the future holds we love to plan for it.
As a wealth manager, we’re a huge advocate of planning not only for the exciting times, but also the difficult ones. The irony of planning is the forethought into what’s not in our control. We must plan for the unexpected. That includes topics such as our deaths and how our loved ones and assets will be taken care of when that time comes.
That’s where estate planning comes in. It is your plan for how you want your legacy to live on and serves as your loved one’s guide to handling your affairs during a difficult moment in their lives. In order to create the best plan for you, it first involves understanding all the components.
The Basics of Estate Planning
Estate planning is preparing for how you’d like your assets managed and distributed after death. It is commonly known as legacy planning, family wealth planning, or succession planning.
Many people equate estate planning with the creation of a will. While a will is certainly an important tool, the two are not synonymous. Think of estate planning as simply the toolbox that packages different tools together. The use of various estate planning tools will change depending on your age, circumstances, and goals.
However, all estate plans should accomplish two overall goals and allow you to define:
- How will your assets flow from you to the next generation
- Which individual(s) will assist with your personal and financial affairs
Why Estate Planning is Worth It
You spent your life working towards your goals, and your legacy should live on the way you envision it. Estate planning is an important way to ensure that your assets pass as intended. Creating a plan is also essential to reducing administrative and tax costs at death (1, 2). More so, it limits the financial and emotional burden placed on your family.
History is filled with famous celebrity examples of estate planning mistakes. Despite these high-profile cautionary tales, estate planning is not just for the wealthy. While the tools and strategies may vary, some level of estate planning is appropriate for everyone, no matter their age or asset level to have their affairs handled with ease.
Who is Involved and Their Roles Within Your Estate Plan
Since we know an estate plan could be for anyone, we need to understand who is involved. From personal relationships to specialized professionals, it takes a team to execute an estate plan. Before you meet with your chosen professionals, think about who in your life should fill each of the important roles within your estate plan. These people will be responsible for fulfilling your wishes. It is important to communicate your goals and the role you’re asking them to play in the execution of your estate plan.
You will need to assign three main roles: Power of Attorney, an Executor, and a Trustee, plus a fourth, guardian(s), if you have children.
Power of Attorney: A Power of Attorney (POA) is a signed document that allows an individual to make certain financial and legal decisions for you. There are three types of Powers of Attorney:
- Non-Durable: Often used in business relationships; expires if you should become incapacitated or incompetent
- Durable: Most common type used in estate planning; survives incapacity, expires upon death
- Springing: Most difficult to administer (requires proof of incapacity); only effective upon incapacity
Once you pass, any Power of Attorney ceases to be effective, and the person you designate in your will as your Executor assumes their duties to now take care of your affairs.
Executor: The Executor has at least four primary responsibilities: (3)
- Gather assets when you pass
- Administer your estate with the court
- File individual and estate tax returns
- Ensure your estate is distributed under the terms of your will
The Executor will handle the distribution of your probate assets.
Trustee: While an Executor’s role may be over once the estate has settled, the Trustee’s responsibilities could go on for some time. The Trustee is the person responsible for any trust assets.
A Trustee’s duties may include filing tax returns for the trust, investing assets in the trust, and distributing the assets according to your wishes. If you do not have someone in your life to fulfill this role, a corporate trustee may act on your behalf.
Guardian: A legal guardian is responsible for the physical care, health, education, and welfare of your children until they reach the age of 18 or 21 depending on what state you live in.
At the end of the day, an estate plan outlines your wishes and who you have confidence in to handle your affairs – and it’s a collective effort. Sure, it’s your wishes and assets, but it takes a team to fulfill those wishes.
We can help
You've worked hard to build your financial security. A trust lets you cement your legacy your way, and we can help. Our Personal Trust Services encompass financial and estate planning strategies that are designed to safeguard your assets, vision, and legacy for generations to come.Learn more
Consult with an attorney or a tax or financial advisor regarding your specific legal, tax, estate planning, or financial situation. The information in this article is not intended as legal or tax advice.
Manning & Napier Personal Trust Services provided by Exeter Trust Company (ETC), a New Hampshire charted trust company and affiliate of Manning & Napier Advisors, LLC. Fiduciary trust and custody services are available through Exeter Trust Company.