Most people understand the basic idea of an estate plan, which is to share your possessions with those you love after you’ve passed away. While that’s a fundamental part of what estate planning is about, an effective estate plan requires a thorough approach. The basic mission may sound simple, but one has to follow strict legal regulations to avoid scams, loss of value and family disputes.
Whether you have a will, a trust or a combination of both, an effective plan should answer three fundamental questions:
- What do you want to happen?
- Why do you want it to happen?
- Who will make sure it happens?
As discussed in a recent article in Kiplinger, an estate plan should adopt a proactive approach to answer these details. Just like writing a paper in school, first you need to consider what goal you wish to achieve, then you need to lay groundwork that emphasizes that point.
Be clear about your estate and wishes
The first point of order is to be upfront about your estate. Include statements of value and your net worth so recipients know that you have considered equality and value and that there was a determined thought process behind your designations. A beneficiary who worries that something was overlooked is more likely to question the legitimacy of an estate plan.
Use caution when choosing decision-makers
Much like other aspects of life, leadership is important. If you choose an untrustworthy or disliked administrator or executor those negative feelings with affect every step of the process. Decision-makers need to be trustworthy and knowledgeable about their duties. They also need to be readily available, ethical and skilled at minimizing conflict.
Update frequently to maintain accuracy
All three core questions focus on clarity and intent. An ironclad will that you write at age 40 may cover all the bases at that point in life, but people, relationships, laws and property values change significantly over time. While major legislation like last year’s tax bill can change estate planning, gradual changes can impact your plan just as severely but with less visibility.
Create a plan that truly communicates
An estate plan means many things. It’s your legacy, it’s your family and it’s closure. It is, at its heart, a form of communication between yourself and those you love. Communication is always difficult to get right. You won’t be there to personally deliver the message, which is why you need to make your estate plan as clear as possible.