Important Elements of an Estate Plan

 A will is one of many documents making up an individual estate plan. Other important aspects of an effective estate plan include beneficiary designations, healthcare and durable power of attorney, a personal letter of intent, and more. These documents outline a person’s final wishes for their money, property, and other assets following their death. With no estate plan in place, or in the event that an estate plan is not legally recognized, assets are distributed strictly in accordance with state law, with no account for the decedent’s desires.

The basic function of a will is to guide the distribution of property, but experienced estate planning attorneys can also use wills to limit taxes and other estate planning challenges. Most individuals will require the assistance of at least one legal professional to complete their estate plan.

The wording of a will or trust is very precise and a slight misstep can result in the entire document being invalidated. If this occurs after the author of the will has passed, there is nothing to be done but subject all assets to probate, a process that allows the courts to appoint an executor distribute assets.

A power of attorney is a person appointed by the author of will to act on their behalf if they cannot do so. For example, if a person falls into a comatose state following a car accident, their power of attorney can make certain decisions in their name. A power of attorney is primarily concerned with real estate and financial transactions, while a healthcare power of attorney’s job is to choose another person, usually a family member, to make healthcare decisions for a person who is incapacitated in such a way that they cannot make these decisions for themselves.

In both cases, it is advisable to select a backup option, incase the originally named power of attorney is unavailable. Otherwise, individuals will find themselves back in a situation where the courts are making important decisions that may not align with desires expressed through the estate plan.

Beneficiary designations are critical to the completion of a comprehensive estate plan. If an estate plan does not name one or more beneficiaries, plus backup beneficiaries, possessions pass to heirs per state law. This is highly important for anyone who does not live within a “traditional” family structure.

For example, states have vary definitions of common law marriages and similar unions; if a relationship does not meet these qualifications, a longtime boyfriend or girlfriend will have no say in asset distribution and will not receive any benefits, as that is not a legally recognized relationship by the courts. Similarly, decedents may prefer assets go to an in need step-child as opposed to a financially secure biological child, a distinction the courts will not take into account.

Finally, an estate plan may also need to include guardianship designations. Again, a parent might simply assume that upon their death the guardianship of one or more children will pass to a sibling or parent, but it is much safer to write these requests down and have them verified by an estate planning attorney.

The Impact of Financial Planning on Overall Financial Well-Being

 Financial planning involves detailing a person's financial circumstances, short and long-term monetary goals, and strategies to achieve these goals. It is important in defining a retirement strategy, risk management, investment, and estate planning. Financial planning plays an important role in a person's financial well-being, resulting in the proactive management of financial obligations.

According to a report by the Federal Reserve, in 2019, 39 percent of U.S. adults could not afford to pay for an emergency of $400 without borrowing or selling an asset. However, in a subsequent report released in May 2022, the percentage of adults who could afford an emergency had improved to 68 percent. Either way, the reports indicate that there is a good number of people whose finances are not in order.

Several benefits result from financial planning. One is that it helps set goals and create strategies to achieve them. Although financial planning is not treated as a priority by some people, it forces a person to identify their future plans and helps make them a reality.

With a financial plan, it also becomes easy to track savings goals, whether for an emergency or investing for retirement. The plan helps to track monthly or yearly progress and helps make adjustments where necessary. For instance, if a goal is to save a certain amount for retirement, it becomes easy to know how much to save each month to reach the desired goal.

Financial planning also serves as a guide to action and decision-making. Some people have difficulties when it comes to making financial decisions. This is also made more difficult by financial terms that some individuals are not familiar with. However, an individual can achieve the desired outcome with a financial plan. A good example is someone who wants to pay off a debt. A financial plan will then serve as a standard to assess the progress of the desired outcome. It also helps prioritize decisions, such as paying off debt or saving for emergencies.

Creating a financial plan helps improve an individual's financial understanding. A person who understands their current financial standing knows where their money is invested or saved. This means that in case of an investment opportunity, such an individual is more likely to take up the chance rather than pass on it. Furthermore, if the individual receives a bonus or salary raise, they know where to put the money.

Financial planning also plays an important role in an individual's emotional and mental health. This is because people are more mindful of their finances, which means they can balance spending, borrowing, and saving. Consequently, this is said to help reduce stress levels. Besides, a person will not have to compromise their standard of living as financial planning helps them manage their money efficiently and enjoy peace of mind.

Having seen some of the benefits of a financial plan, it is important to note that it is not reserved for a certain time or people. A person should create a financial plan as soon as they have an income. However, since financial priorities keep changing, it becomes necessary to gain knowledge on financial literacy and seek professional help from financial planners.