Estate planning is a legal process that lets you dictate how your assets and other responsibilities are handled when you pass away or become incapacitated. A will is one of the most common legal documents in an estate plan, and can be helpful no matter how much cash, savings, and other property you have. In fact, there are many benefits to creating an estate plan for both you and your loved ones, no matter how much you have.
- Adults with assets of any amount can benefit from estate planning.
- An estate plan can protect minor children and include health care directives if you become incapacitated.
- There are many affordable options for creating an effective estate plan.
Estate Planning Isn’t Dependent on Size
Slightly less than half of American adults (46%) have a will in place, according to the polling firm Gallup. That means the majority of adults have not set any legal parameters on how they wish their assets to be passed on when they die. Regardless of how much or how little you think you have to bequeath at the end of your life, estate planning is important for everyone.
“The general concept of an estate plan is typically associated with significant wealth and those near the end of life,” said Dakota Tate in an email to The Balance. Tate is managing director and trust officer at First Commercial Bank in Jackson, Mississippi. According to Tate, there’s one reason why everyone needs an estate plan, no matter what stage of life they’re in: control. “If a person wants any kind of control over how, if, and where their assets get distributed when they pass, an estate plan is the best way to do this,” Tate said.
6 Reasons To Make Estate Plans Before You Have Significant Assets
There are many scenarios in which having an estate plan in place can make a huge difference for the people you love. These six reasons make estate planning a must-have for anyone, regardless of how much cash you have in the bank.
An Estate Plan Protects Your Children
An estate plan is crucial when you have minor children in order to name a guardian on their behalf. Otherwise, the state will choose for you, usually from one of your remaining relatives. Additionally, you can implement financial safeguards for your children, even if you don’t feel like your assets are substantial. For instance, you can create a trust structured in a number of different ways to meet each individual child’s needs, whether it’s paying for education or providing a stipend later in life.
An Estate Plan Minimizes Taxes for the Wealthy and Probate for Everyone
The federal estate tax exemption for 2022 is $12.06 million, and 17 states implement either an estate tax or an inheritance tax on assets above certain thresholds. Putting some assets into a trust could potentially reduce applicable state and federal taxes on sizable estates. For everyone else, placing assets into a trust, assigning rights of survivorship to real property, and naming beneficiaries for banking and other accounts can avoid a lengthy probate process.
Estate Planning Prepares for When You’re Incapacitated
Regardless of your finances, creating a health care directive is another relevant component of estate planning for all adults. A medical crisis at any age can prevent you from communicating your wishes to health care professionals. That’s where a health care directive comes in.
Also known as advance-care planning, these legal documents name a person to medically represent you, while also outlining your care preferences, including DNR, ventilators, and artificial nutrition.
Estate Planning Accounts for Family Dynamics
Another factor that impacts estates of all sizes is family dynamics. According to Tate, “Many families are blended or carry complicated relationships. This makes the process of ‘who gets what’ very tricky from a legal standpoint without an estate plan.” With a will in place to outline your intentions in detail, you’ll keep control over the division of assets even after you’re gone.
It’s important to review and update your will on a regular basis. Tate had a client pass away who had remarried, but had not switched the beneficiary from the first spouse to the second spouse. “Because none of the legal documents had been reviewed, the first spouse was the legal beneficiary,” Tate said.
An Estate Plan Takes Care of Non-Cash Assets
Assets include more than bank accounts and retirement accounts. Creating an estate plan helps you divide non-cash assets as well. “I see a ton of land and LLCs in my job of trust administration. I have also seen rental properties and even a restaurant,” said Tate. Also consider any business assets or side-hustle accounts that may need to be included.
Another consideration is digital assets. According to Tate, “Digital assets are going to become more and more common as the world of the metaverse, cryptocurrency, and NFTs begins to normalize.” In fact, more than 20% of Americans already have either traded or used crypto, according to one poll. Create an estate plan that includes instructions on how to access any cryptocurrency accounts, physical wallets, or digital wallets you own. The same holds true for NFTs. “The future may hold a person discussing an NFT passed down from his or her great-grandparent waiting to be sold at auction, much like an original Picasso or Van Gogh would today,” Tate said.
An Estate Plan Doesn’t Have To Be Costly
How much can you expect to spend on an estate plan? When enlisting the help of a professional, Tate offered a few different price ranges to expect. “Some plans are made of just a will and a trust. A very simple estate plan could cost anywhere from $500 to $1,500, while a solid estate plan with multiple moving parts may cost anywhere from $1,000 to $2,500.”
There are also many online software options to consider to put basic estate plans in place, such as a will, guardianship, and health care directive. You can always upgrade to professional help as your finances and relationships become more complex.
The Bottom Line
If you don’t already have an estate plan in place, it may be time to get started. Even without a lot of assets, estate planning gives you the ability to put a number of protections in place.
Frequently Asked Questions (FAQs)
How much does an estate plan cost?
A professional estate plan from an attorney starts at several hundred dollars, while an online will maker can average between $20 and $100. Prices go up if you need more complex estate planning tools.
How do I prepare an estate plan?
There are several steps to creating an estate plan, including:
- Calculating your net worth
- Assessing your family’s needs
- Planning for incapacitation
- Choosing a fiduciary
- Updating every few years or alongside major life events
How often should I change my estate plan?
At a minimum, check your estate plan for updates every three to five years. Some estate planning experts advise an even more frequent review process—an annual review and a review after key life events such as a marriage or the birth of a child.
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