Personal Finance April 22, 2016

    Who needs an estate plan? If you're envisioning people with grandchildren or yachts, you're not alone. Many people who lack an estate plan believe they're too young or have too few assets to justify the time and cost of any special planning.

    In reality, these assumptions are false for most people. You might not view your possessions as an "estate," but if you have financial assets of any kind—such as retirement savings, brokerage accounts or real estate—you really do need to put plans in place to protect them in the event of your death. Otherwise, you run the risk of leaving unanswered questions about how to settle your affairs, which could make an already difficult time even more challenging for the people you love.

    Additionally, "estate planning" might be a bit of a misnomer, because you can do more with your plan than just protect your assets. Your estate plan also lets you specify how to take care of people: You can select guardians to care for your minor children should you pass away, as well as establish powers of attorney and medical directives for yourself in the event you become incapable of making those decisions.

    For many people—particularly those under 40—a simple estate plan is sufficient, at least initially, and can be established in a few simple steps. For people who are more financially established, or who have unique circumstances that require special care, the process can take a bit longer. Estate law varies from state to state, so whatever your situation, we strongly recommend enlisting the help of an experienced estate planning attorney. Charles Schwab & Co., Inc. has more information about how to choose an estate planning attorney.

    Here, we'll look at the elements of an effective estate plan for three different stages of life.

    Stage 1: For those who are young, single and have few assets

    Individuals with simple estate planning needs tend to be fairly young, single and childless. If you fall into this camp, you only need to take a few steps to ensure you're prepared if something happens to you:

    • Designate beneficiaries on retirement accounts: Determine who you want to inherit your savings should you pass away. Most young, single investors choose parents or siblings as beneficiaries.
    • Consider establishing a power of attorney: This may allow someone you trust to control your finances if you become unable to do so yourself.
    • Designate a health-care proxy: After age 18, your parents no longer have the legal right to make medical decisions for you. Consider designating a parent or other trusted person as your health-care proxy so she or he can make medical decisions for you if you become incapacitated.
    • Draft a will: This legal document is a great way to ensure that certain financial and non-financial assets—such as non-retirement savings accounts, jewelry or a special record collection—are passed to the right people.

    Stage 2: For those who are married, have children or own property

    People at this stage will need to take a few additional steps to ensure their loved ones and property are adequately protected. In addition to the tips listed above, people at this level of estate planning should:

    • Update your will: This is particularly important if you recently got married or had a baby. Make sure your will reflects the current desires of both you and your spouse, and that you've nominated a guardian to care for your minor children. Without this designation in place, the state will choose a guardian, and it may not be the person you would have chosen.
    • Review asset titling: Titling assets jointly with rights of survivorship is an easy way to ensure that your property passes to your heirs without delay. For example, assets you hold jointly with another person, such as your spouse, go directly to him or her without the need for a will, a trust or probate.
    • Consider purchasing a life insurance policy: It's usually a good idea to have life insurance at this point in life, especially if you have a mortgage or children. Term life insurance provides a death benefit that can help replace your income, pay off the mortgage or fund your children's education in the event of your death.

    Stage 3: For those with sizeable estates or complex needs

    People with large estates or complex family circumstances should consider a few additional steps to ensure their assets and heirs are adequately covered:

    • Consider establishing a trust: Depending on your needs, you may want to set up a trust (or a combination of trusts) to help achieve more complex planning objectives, such as avoiding probate, reducing estate taxes or caring for special-needs individuals. A trust allows you to establish specific rules regarding the distribution of your assets and assign a trusted party (called a "trustee") to carry out your plans.
    • Tax planning: Estate taxes could reduce your estate by as much as 40%, leaving less for your heirs. If you're worried about how taxes will affect your estate, a qualified estate-planning attorney can recommend sophisticated strategies to help reduce taxes.

    How Schwab Intelligent Portfolios® Can Help

    Did you know that Schwab Intelligent Portfolios offers revocable living trust accounts? These flexible accounts allow you to transfer ownership of assets from your name to that of the trust. After you transfer the assets, you maintain the same access to and control over them as before.

    This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Charles Schwab & Co., Inc. (“Schwab”) recommends that you consult with a qualified tax advisor, CPA, financial planner, or investment manager.


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