Our industry is famous for coining terms and then using those phrases assuming everyone knows what they mean. Estate planning is one of those terms. What is an estate really? What makes up an estate? What is estate planning? Let’s dig into this a bit.
Estate planning overview
Generally speaking, an estate is everything that encompasses your net worth. This can include cash, possessions, land, real estate, financial securities or investments, and any other assets you own. Now that we know what an estate is, we can dig into estate planning. Estate planning is really death planning. What would I want to have happen to my stuff if I leave the planet? Although it does not bother me, we do not call it death planning, because that is just a bit too harsh for most people. So, “estate planning” it is.
As a financial advisor, I also hear the questions: What if I don’t have much stuff, or what if I don’t care what happens to my property?
There are many who die without making plans for their estate, a.k.a. all of their stuff. That is all fine and well, but the State of Iowa (or whatever state you live in) has a plan for you. In Iowa specifically, the law basically outlines a plan of succession for your estate. This plan details which family members are ranked to get first dibs on your stuff. The only tough thing about this plan is it does not address your situation specifically, and it may create extra time and effort on the part of your executor.
Wait, what is an executor? Simply put, the executor of your estate is the person who handles all of your stuff after you are gone. They will administer your last will and testament and make sure that all of your assets are accounted for and are distributed accurately. You can designate the executor of your estate through your will, or if you do not have a will, the court will appoint them.
Estate planning with children involved
We have talked about property and assets in your estate, but what if you have minor children? There are some things you want to consider as part of your estate planning if you have minor children. Who will be guardian of our children? If no plans are left as part of your planning, will family members fight over the kids? This is not a good situation. So, even if you do not have a lot of stuff, you may want to ease the burden on those around you by leaving some plans. An “estate plan” is really an act of love you put in place for those you leave behind.
Developing your estate plan
How do you develop an estate plan? Usually the first step is to take a full inventory on the possessions you own. In the finance world, we call these possessions assets. It is also important to make a list of what you owe and to whom. The technical term for your debt is liabilities. A thorough listing of your assets and liabilities is called a net worth statement. If you need help writing your net worth statement, we wrote a blog about creating a net worth statement for you!
Now you are ready to go down through the list of your assets and liabilities and ask the questions: What would I like to see happen with this possession or asset when I die? I would also recommend a phone call to each lender that has loaned you money and ask them a simple question: What happens to my loan balance if I die?
There are many ways to make your end of life plans and put it in writing. You perhaps know of terms like wills, trusts, beneficiaries, and heirs. My best advice is to add a trusted attorney to your estate planning team - one who will take the time to educate and teach you about these terms and their potential use in your situation. The Compass Financial Advisors have relationships with attorneys in town that we know and trust. Reach out to your Des Moines financial advisor if you need a recommendation. This may cost you a few bucks, but remember it is a labor of love for those around you.
Your Des Moines Financial Advisor can help
Making our end of life plans is always a bit disconcerting. It takes a measure of reflection and facing our own mortality. That is not easy for us humans, but these plans are pretty important, even if our situation is relatively straightforward. If you have questions about your estate plan or are interested in starting the process of making plans for your estate, contact us today!
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for an individual. The information is not intended to be a substitute for individualized legal advice. We suggest that you discuss your specific situation with a qualified attorney.