What is Estate Planning?

Estate planning is the process of arranging and managing your money, property, and other belongings for the future. Estate planning is important in case something happens to you, like getting sick or passing away. While it may seem like something only older or wealthier people need to consider, it's actually important for everyone, including young adults.

A man with thought bubbles surrounding him. Inside the thought bubbles are: a woman with two children, a house, a dog, a car,

Estate planning involves thinking about all the people and things that are important in your life.


Why is Estate Planning Important?

Estate planning might seem like a grown-up or end-of-life topic, but it is essential to understand it – even at a young age. Not only will you need to create a plan for your own belongings one day, but you might also be a part of someone else's estate plan, like a beneficiary. Being a beneficiary means that your family member or friend has chosen you to receive something special from their plan, such as money or a treasured item.

By learning about estate planning now, you'll be better prepared to make smart choices when the time comes for you to make a plan or receive a gift from someone else's plan. Plus, it's always good to be the one who knows what's going on and can help others understand, too.


The Goals of Estate Planning

There are many different goals that estate planning can help you achieve. Here are some of the main ones:

  1. Taking care of loved ones: One of the most important parts of estate planning is ensuring your family and friends will be okay if something happens to you. This might involve setting aside money for your children's education, providing for your spouse, or ensuring your pets are cared for.

  2. Deciding who gets your belongings: Estate planning helps you decide who will receive your belongings, money, and property if you pass away. This can be important if you want certain people to have specific things or to ensure your possessions are divided fairly among your family and friends.

  3. Choosing someone to make decisions for you: If you cannot decide for yourself, estate planning allows you to pick someone you trust to handle your affairs. This person might be responsible for paying your bills, making medical decisions, or managing your business.

  4. Expressing your wishes: Estate planning allows you to make your wishes known, whether that's your preference for medical treatment, your funeral arrangements, or your wishes for how your belongings are divided.


What Does Estate Planning Look Like?

Imagine that Naira, a young woman with a growing career and a young daughter, creates an estate plan. She designates her sister to take care of her daughter and sets up a trust to provide for her daughter's education and living expenses. She also names her best friend as the person who will make sure to carry out her wishes and her brother as a person who will make medical decisions if she is unable to.

When Naira unexpectedly passes away, her family and friends are devastated but know exactly what to do. Her daughter is being taken care of by her loving aunt, her assets are distributed according to her wishes, and her healthcare and funeral preferences are honored.


What Happens If There is No Estate Plan?

Suppose Naira never made an estate plan. When she dies, her family is not only mourning her death but also uncertain about her wishes. Her family is left guessing about her healthcare and funeral preferences. Figuring out who will look after her daughter becomes complicated, and they must endure a long legal process and wait for a judge to decide. Before her assets can be divided, they must undergo probate, which is both costly and time-consuming.

Family starts to disagree on who should get Naira's house, or if the house should be sold and the money divided among family members. As a result, family members are not talking to each other and a divide between the family is created. All of this leads to estrangement between loved ones during a time when they should be supporting each other.


Why You Should Start Thinking About Estate Planning

Even though you might not have a lot of assets or dependents right now, it is still valuable to start thinking about estate planning. Estate planning could be as simple as deciding who will take care of your pet if anything happens to you. Or, it could be understanding your role in someone else's plan.

As you get older, your life will change – you might get married or divorced, have children, or buy property, and at that point, it is important to have an estate plan. By considering your estate plan early, you can make sure you're prepared for the future and that your loved ones are protected.

So, start thinking about your own estate plan now, and remember to update it as your life changes. You'll be taking an important step toward protecting your loved ones, your legacy, and your wishes.

Source: Khan Academy, https://www.khanacademy.org/college-careers-more/financial-literacy/xa6995ea67a8e9fdd:insurance/xa6995ea67a8e9fdd:estate-planning-and-legal-instruments/a/estate-planning
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