Step 56: Estate Planning

Step 56 of the 100 Steps to Financial Independence: Estate Planning
Step 56: Estate Planning

Maybe not the nicest step of the 100 we’re covering to think about, but estate planning should be high up your priority list of financial planning. Not only will you feel more at peace knowing that you have made the necessary arrangements for when the time comes, your family will be grateful being able to mourn and deal with the emotional side of your demise, instead of worrying over legalities and finances.

In this step we’ll look at the key parts you should arrange as part of your estate planning, which include:

  1. A will or trust
  2. A health care proxy / health care power of attorney
  3. A power of attorney
  4. Beneficiary designations
  5. Guardianship designations
  6. Letter of intent

A will or trust

A will is a legal document that details what should happen to each of your assets upon your death, providing this is in compliance with local and national legislation. Trusts can furthermore be advantageous in terms of certain tax or legal issues.

A health care proxy

In a health care proxy or health care power of attorney, you assign somebody to take important health care decisions should you no longer be able to do so mentally or physically. When you draft up this document you not only want to choose somebody who you trust and who you know shares your views, but you also want to make sure that you discuss your wishes with that person, so they can act in your interest if this were ever needed. Make sure to assign a second person in case the first person selected is unable to act at the time.

A power of attorney

By setting up a power of attorney (POA) you assign somebody to the role of making any financial and legal decisions, including about your estate should you not be able to do so. If you don’t have a POA assigned, matters might be taken to court in order to decide what should happen to your assets and the court’s decision might not be in agreement with what you had envisaged yourself.

Beneficiary designations

Depending on your country’s or state’s laws, the succession of some assets doesn’t need to be stipulated in a will, as they automatically pass to your beneficiary named whether or not you have them included in your will. This can happen with certain retirement accounts for example or insurance policies, as long as you have named a beneficiary of course. You want to be careful that if you take these accounts up in your will that you name the same person there as the one who you named in said account itself, so that there is no conflicting information, as in that case a court might need to get involved.

Guardianship designations

One of the most difficult yet probably most important parts of estate planning is thinking about any underage children, whether you have children or are thinking of having children at some point in the future. You want to appoint a guardian, whether that is an individual or a couple, as well as a contingency guardian, in case your first choice is unable to look after your children should that need ever arise. Of course you want to make sure that the guardian(s) are capable and willing to raise your children, have the financial means and share your views and beliefs about what is important to you. If no guardian is assigned, a court could get involved, deciding for your children to live with a family member you might not have approved of, or they might be put in foster care or under custody. This is not an easy decision to make ever so be sure to discuss this thoroughly with all involved.

A letter of intent

In a letter of intent you can express your views on what should happen with your assets and other financial or legal matters when you pass away or are no longer able to make a decision. It can also include arrangements for your funeral / cremation or other specific wishes you might have. Although a letter of intent is usually not a legal document, it can help a court to understand your wishes should any of the previous documents be ruled invalid for whatever reason, though it would not guarantee that they were all acted upon. A letter of intent can therefore never be a replacement for any of the previous documents.

Step 56 – Estate Planning – in detail

  • Discuss your wishes with your partner, children and other important family members if needed, so that everybody can express their opinions and views related to your and your partner’s estate planning
  • Pull out your list of assets that you compiled in step 5 and make sure it is still up to date.
  • Decide how you would like to divide your inheritance amongst family, friends and possibly charity.
  • Check whether you have named any beneficiaries on any of these assets and whether this is still according to your wishes. If not, get these changed.
  • Make an appointment with a notary, estate attorney or whoever else would be authorized in your country to draft the legal documents needed and discuss the arrangements you want to make in order to get the necessary documents discussed above drafted, signed and legalized.
  • Set a reminder to check and update if needed any of these documents on a regular basis. Getting into the habit of quickly checking all is still in order yearly is definitely highly recommended. Whether it is your situation that has changed or maybe your appointed guardians for your children who could no longer assume this role, you want to make sure you update your arrangements.

Regardless of how old or healthy or forward thinking you are, you should set up an estate plan now. Once it is set up it will be a lot easier to update and it will give you peace of mind that your heirs will be provided for. I agree it is not the most cheerful part of our route to financial independence, but it might be one of the most important planning you’ll ever do.

Read more about my 100 steps mission to financial independence or simply decide to take control today and join us on our step-by-step quest on how to make your finances work for you, starting with step 1.


2 thoughts on “Step 56: Estate Planning

  1. I like the simplicity of beneficiary designations. I did all mine online. You don’t need paperwork, lawyers, notarization, nothing. I think it deals with 80% of your decisions with 20% of the effort. For real estate I did TOD (transfer on death) statements, had to use a lawyer but it was relatively quick and cheap, just add it to your check list when you buy.
    Very relevant post!


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