Estate Planning – An Important Part of Your Financial Life

By on August 24, 2017

What is estate planning, and why is it so important?

According to USA Today, nearly two-thirds of Americans don’t even have a will, perhaps the simplest estate plan. Moreover, estate planning is more than just creating a will, it involves other important documents such as powers of attorney (POAs), advance healthcare directives, and trusts, in some cases. The POA allows you to designate an agent to act on your behalf, should you die or become incapacitated, and is typically used for legal and financial matters. These can be written as “springing” powers, where the agent can only act once you are no longer able to act on your own. Advance healthcare directives, including living wills, permit you to state ahead of time what kind of medical treatment you would prefer at the end of life, if you’re unable to speak for yourself. These normally include a healthcare POA, empowering the agent you choose to make decisions on your behalf. An estate planning attorney will normally include all these documents. You should also consider the beneficiaries of your accounts, including contingent beneficiaries.

By having your preferences documented in advance, the estate plan allows you to spell out your wishes, regardless of your financial situation. It’s important for parents of young children to have a plan that names a guardian for the children, if both parents die or are incapacitated. If no guardian is named in the will, or there is no will, then the court will have to name one. You probably know who you would want to act as your agent if you were incapacitated, or what level of medical intervention you would desire if, for example, you could no longer breathe on your own. If you have financial and/or real estate assets, you also likely know who you would want to have control of those assets after you’re gone. All of these preferences can be expressed in your estate plan.

In addition, preparing ahead of time is an act of kindness for your loved ones. Having a roadmap for your wishes takes some of the burden off them while they are mourning. It also removes the necessity for them to make difficult decisions while they’re grieving, because you have already made the decisions for them in accordance with your values.

Once the estate plan is in place, it should be reviewed and/or updated at regular intervals. Significant life changes often necessitate a review:  marriage or remarriage, divorce, death of a spouse, birth, or adoption of a child. At the very least, you will likely need to update the beneficiaries on your existing documents, as well as on your financial assets such as IRAs, 401(k)s, etc. If you have a significant wealth event, such as an inheritance or business sale, you may need to update your plan to include trusts that might not previously have been necessary. If you have a trust, you should periodically ensure that the appropriate assets are titled in the name of the trust, or you may need to update the trust with additional financial accounts or real estate.

Even absent the above issues, your estate plan needs to be reviewed periodically. Did you name a guardian when your children were young, but now they’re old enough to be living on their own? You’ll want to update the plan, especially as you might consider naming them as successor trustees or granting them POA.

Estate planning does require some thought upfront on your part. Who should be your agent?  To whom should you grant POA or healthcare POA?  What do you want to happen to you and to your assets upon your incapacitation or death?  Once you have your documents in place, however, the hard work is over. You can have peace of mind knowing that your preferences are documented, and that by creating a plan, you have reduced the burden for your loved ones.



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