Putting Together An Estate Plan For Your Investments

Help make sure the right people make decisions on your behalf and receive the inheritance you want.

illustration of estate planning paperwork

In 10 seconds

Your estate plan provides a roadmap for what happens when you die. It can cover everything from funeral plans to who will take care of your kids and how your assets will be distributed.

In 1 minute

If you suddenly found yourself on life support or developed a serious mental illness, what would happen to you? If you died tomorrow, what would happen to your children, and your things? State laws can answer these questions, or you can decide for yourself with an estate plan.

By preparing in advance, you can help ensure that the right people make decisions on your behalf and that your loved ones receive the inheritance you want them to. (And if there’s anyone who shouldn’t receive an inheritance, your estate plan can keep them from cutting in.)

Designating a financial power of attorney and creating an advanced medical directive will help ensure that important decisions are made by people you trust if you’re ever incapacitated. For financial accounts, you can set up joint ownership or name beneficiaries so that these assets make it to the right hands.

Sometimes you may want to divide these responsibilities between trustworthy people. But this can also make even simple decisions more complicated—because two or more people have to sign off on every choice.

Creating a last will and testament can lay out your final arrangements, distribute your personal possessions, and name a new guardian for your children. You’ll also choose an executor to carry out your desires.

A trust is another key estate planning arrangement that can give you control over who receives financial assets, when they receive them, and how they can use them.

Together, these roles and documents allow your financial plan to live on when you’re unable to manage it. A well thought-out estate plan can give your loved ones a little piece of mind and remove some of the uncertainty they’ll face in your absence.

In 5 minutes

In this guide, we’ll cover:

  • What your estate plan needs to do
  • Who should be part of your estate plan
  • What documents to include in your estate plan

An estate plan can define what will happen with the people and things you’re responsible for if you die or become incapacitated. Who will make medical or financial decisions on your behalf? Who will be your child’s new guardian? How will your finances be divided? Who gets the house?

Those aren’t decisions you want a stranger to make for you. But without an estate plan, that could be what happens.

Unless you say otherwise, state laws will govern your estate. And those generic laws may not align with your values and goals. That’s why whatever your age and whatever your financial situation, an estate plan is crucial.

Before you start creating an estate plan, it helps to consider your unique situation.

What does your estate plan need to do?

Your estate plan can answer questions about what happens with your assets and how your loved ones will be taken care of when you’re gone. So you need to consider how you’d answer those questions now, anticipating choices that could come up in the future.

For example, if you’re expecting to receive an inheritance, be sure to think through how your estate plan would distribute it or who would manage it. And if there’s anyone you need or want to financially support, that should guide your estate plan as well.

Who should be part of your estate plan?

An estate plan doesn’t just decide who gets what. It can also determine who’s in charge of what. There are several key roles to consider in your estate plan. You may want to divide these roles between multiple people, or let one call the shots. For example, if all of your children have the authority to make medical decisions on your behalf, that may lead to more thoughtful decisions. But it’s a trade off. Each of the people you give power to has to sign off on decisions, which can slow things down and make it much more difficult to coordinate.

Financial Power Of Attorney (POA)

Giving someone financial power of attorney can make it easier for them to pay bills, file taxes, or cash checks on your behalf. You can decide how broad or limited their control is. Even with broad authority, a financial power of attorney can’t change your will. The idea is that if you’re physically or mentally unable to take care of your day-to-day finances, you’ve designated someone to take care of that for you. Make sure the person you designate has a copy of this paperwork or knows where to find it. You can also give a copy to your financial institutions.

Advanced Healthcare Directive

An advanced healthcare directive helps decide how to handle medical decisions when you can’t make them yourself. It can lay out specific care instructions like, “Do not resuscitate,” but it can also give someone medical power of attorney to make decisions on your behalf. When you can’t think through important decisions anymore, who do you want to make the call? Your spouse? Your children? A parent? A sibling? As with financial power of attorney, you can define the scope of this power.

Joint Owner

If you name someone the joint owner of your accounts, then when you die, they become the sole owner. This is a common way for married couples to handle their estates, and it usually keeps the state from getting involved in distributing your assets when you die. Just keep in mind: anyone you name as a joint owner gains equal control of your assets while you’re alive, too. Also, retirement accounts such as 401(k)s and IRAs can’t be put into joint ownership.

Beneficiaries

You may also want individual assets to go to specific people. In that case, you may want to name beneficiaries for your bank accounts, investment accounts, life insurance policy, real estate, and other major assets.

Name beneficiaries in your will, and these assets will have to go through probate first, where a court process proves that your will is authentic. This typically increases the time before your beneficiaries receive the inheritance and reduces the amount that ultimately makes it to them. For your accounts, adding beneficiaries can be as simple as filling out a form through your bank or investment firm. In some states, you may be able to use a Transfer on Death (TOD) Deed to ensure that your real estate goes directly to the beneficiary.

Here’s how easy it is to set up beneficiaries in Betterment.

 

What documents should your estate plan include?

While there are many legal documents that make up an estate plan, two of the more important ones are a will and a trust. Here’s what those entail.

Last will and testament

A will serves several purposes. It can clearly lay out your final wishes, state who will take care of your non-adult children, and say who receives your belongings. If you do a good job naming beneficiaries for your assets, this mostly affects personal belongings.

A will should usually start with a declaration. This identifies who you are and says that the document is your will. You’ll generally have to sign it in front of witnesses (and possibly a notary).

You’ll need to choose an executor who will ensure your wishes are carried out, including any final arrangements for your death and funeral services. Your will can define the scope and limitations of their power as well as any compensation you want them to receive. If you have non-adult children, your will should name their new guardians. Wills also define bequests: individual gifts you give someone. Think family heirlooms. Clothing. Vehicles. Money.

You can change your will at any time. And as your valuables and relationships change, you’ll want to keep it up to date.

Trust

A trust is a legal entity that gives someone (usually you) the right to hold your assets for the benefit of someone else. It provides several advantages that help your financial plan live on when you’re gone. Some types of trusts can shield your assets from estate taxes. They can also protect your assets from creditors, litigation, and even public records. As part of your trust, these assets also avoid probate. By using a trust, you keep greater control over your assets, too. You can define who gets your assets and when, as well as what they can do with them.

With Betterment, you can open an account in the name of a trust–revocable or irrevocable–that you have already established.

Plan your estate

State laws can vary and every personal situation is different. Betterment is not a licensed estate planning professional, so we highly recommend speaking with an estate planning professional or an attorney to help you navigate this journey.