Estate Planning Basics

By: Michael Foster, CFA, CFP®

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There are few universal truths in financial planning. 

As a planner, it’s my job to plan for an unknown future state using the best information I have from the past and looking towards what’s likely, but not guaranteed, to happen over time. My day consists of a lot of “it depends”, “potentially”, and “more often than not” when talking with clients.

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This doesn’t mean that we shouldn’t use sound logic and assumptions in our planning (quite the opposite!), but it does mean that we are somewhat at the whim and general uncertainty of what the future holds. Different financial situations and client goals call for unique solutions at different times all while planning for the unexpected. 

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One truth in financial planning (and life) is that we all will pass at some point. It’s not fun to think about, but it’s going to happen. Sorry if this is the first thing you’re reading today. I promise that 90%+ of my writing is usually very positive!

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This truth, however inconvenient, makes estate planning a crucial part of the overall financial plan. You may not have a say in when you pass, but you do have a say in what happens when you do. Making sure you have an estate plan and that your finances are coordinated with that plan is a key part of ensuring your estate goals are met.

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Making the Plan

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First and foremost, you should have an estate plan. I’m not an attorney and can’t draft documents, but I know people who are! In my opinion, most everyone should have at least the basic documents like a will, powers of attorney, and medical directive set up. Others may require a trust to meet their wants and needs. Trusts sometimes have the connotation of only being associated with the uber-wealthy or complicated situations, but trusts can also be setup relatively inexpensively for many people to provide a faster and more private option than going through the probate process. The estate attorney can help provide you with guidance on how to best meet your needs.

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Coordinating with Your Financial Plan

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Once the plan is set up, it’s key to make sure that it works with your financial plan. After all, why go through the energy and effort to craft an estate plan to your wishes and then not have your finances linked to that plan? 

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For instance, account titling and updating beneficiaries to match that of the estate plan can help avoid potential legal and tax complications down the road while ensuring a smoother transfer after death. This is often the first thing we help our clients with after setting up or updating their estate plans.

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There are also considerations on how your financial goals might impact the estate plan. Many clients have charitable or legacy goals that can directly impact the estate plan. Whether it’s gifting to family members, creating a charitable trust or donor-advised fund, donating to the causes of your choice, or a host of other goals, you can make sure those desires are integrated into both your estate and financial plans while being mindful of taxes and annual exclusions.

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Finally, an estate plan, like your financial plan, is a document that needs to evolve as your life circumstances and goals evolve. Life events such as marriage, divorce, having kids/grandkids, or death of a spouse can necessitate significant changes to the estate plan. Additionally, changes in tax laws can have a large impact. Making sure your estate plan is updated and coordinated with your finances after these changes is important. 

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What happens at your passing, while not fun to think about, is a crucially important part of your financial plan. Making an estate plan and coordinating that with your finances is a huge part of protecting your wealth, minimizing tax, and ensuring your wishes are honored.