Estate planning isn’t only for the wealthy – preparing an estate plan is an essential step for people at all income levels. Anything that you own is part of your estate, regardless of the value of your assets. It’s worth the effort to design a plan so you can protect as much value as possible for your loved ones.

What is Estate Planning?

How do you want your money and assets to be distributed after you are gone? When you create an estate plan, you outline the process that should be followed after your death or incapacitation: who will receive your assets, how the responsibilities will be handled, and more.

The goal is to create an estate structure that allows your beneficiaries to receive as much as possible. A good estate plan minimizes all types of taxes, including income tax, gift tax, and estate tax. Additionally, estate planning is essential to avoid probate.


5 Essential Components of Estate Planning

An estate plan is more than writing out a will – even if you have a will, many pieces of your planning still need to be addressed. Here are the most critical components you should include in your estate plan:


  1. Will

The first and most basic document is your will. This directive states the beneficiaries of your property, as well as the executor who oversees the distribution. Families with young children should choose guardians.

Typically, a will requires probate and only applies to property within your probate estate. There are many other assets outside the probate estate, such as life insurance policies, joint tenancy assets, IRA’s, 401(k)’s, and annuities. These non-probate assets must be managed by the associated beneficiary designation or the form of title, not your will.


  1. Durable Power of Attorney (DPOA)

When you have a DPOA, it means that you select someone to oversee financial matters if you are unable to make these decisions for yourself. It’s best to assign a DPOA instead of the default of a court-supervised conservatorship. This person assists on your behalf with long-term care and planning decisions.

Keep in mind that the DPOA no longer exists after your death. So, having a DPOA is not a substitute for a will.


  1. Trust

When you own significant assets, such as a home, it’s wise to create a trust. A trust is different from a will because it helps avoid probate. In addition, after you are gone, trust assets are passed to your beneficiaries more quickly and less costly compared to standard probate practices.

Additionally, a trust is helpful if you become incapacitated because it appoints a successor to step in and manage your financial affair while you are still alive. A trust continues after your death, just long enough to distribute the assets as directed.

In the state of California, if you do not have a trust, it means that your estate will go through the expensive probate process, which can take a year or longer. In California, a cheap house can cost around $500-600k – and a family often pays $20,000 or more in probate costs. Assets in your trust can avoid probate, but anything in the will still has to go through probate. Even if you have a will, it’s recommended that you set up a trust if you have more than $100,000 in total assets.


  1. Advance Healthcare Directive

Next, you’ll want to choose someone who makes healthcare decisions on your behalf if you are incapacitated. This directive also outlines your wishes for end-of-life care. Then the decision-maker can follow your instructions when deciding on specific details for your care.

The appointed person has authorized access to your medical records, and they are able to select doctors and care providers for you. An Advance Healthcare Directive also documents your wishes for burial, cremation, and autopsy.


  1. Beneficiary Selection

When creating your estate plan, it’s essential to review all beneficiary designations listed on bank accounts, brokerage accounts, insurance policies, retirement plans, annuities, and more. These designations override your trust or will, so make sure your designations are current.


Customized Solutions for Your Estate Plan

We are experts at Estate Planning and helping clients secure their assets and protect their heirs. Solutions, of course, are unique for each family. Contact us at (951) 445-4114 or email us at [email protected] to discuss your situation today.