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Key takeaways
- While lawyers draft wills and trusts, financial advisors help align those legal documents with your full financial picture, from investments to insurance.
- From organizing documents to setting up trusts, advisors help manage the many moving parts of estate planning so nothing falls through the cracks.
- If you want to leave a charitable legacy, advisors can help you use tools like donor-advised funds to maximize both your impact and your tax deductions.
- Look for an advisor with CFP credentials, solid referrals, transparent fees and a collaborative attitude. If an advisor can’t explain things clearly, they’re not the right fit.
Estate planning often sits at the bottom of people’s to-do lists, but it plays a crucial role in securing your family’s financial future. It ensures your loved ones are provided for after you pass away, and outlines how your belongings are distributed.
“Estate planning is for everyone, not just wealthy people,” says Stephen Kates, a certified financial planner and financial analyst at Bankrate. “Simplifying your heirs’ responsibilities in closing your estate may be one of the best gifts you can give.”
Without a proper estate plan in place, the legal system decides how your assets are distributed, which can cause problems for your beneficiaries. This process, known as dying intestate, can lead to a time-consuming and costly ordeal in probate court.
While an estate planning lawyer is vital for drafting certain legal documents, a financial advisor brings a broader perspective to the table. They analyze your income sources, investment portfolio, retirement accounts and insurance coverage, providing financial context that might not be apparent to a lawyer.
From picking the right long-term care insurance to maximizing charitable contributions, a skilled financial advisor can make all the difference during the estate planning process.
1. Guides you in gathering the necessary documents
A financial advisor can help you draft an estate planning checklist and organize all your documents, including:
- Will
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A legal document that outlines your wishes regarding the distribution of your assets.
- Power of attorney
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Designates someone to make financial and/or medical decisions on your behalf if you become unable to do so.
- Living will
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Informs doctors and medical professionals about how you want to be treated if you cannot make your own decisions about emergency treatment.
While an advisor can help you gather these documents, they can’t provide legal advice. For help with drafting and finalizing a will, consult a lawyer.
2. Works through the division of your assets
Dividing assets can be one of the most emotional aspects of estate planning.
If you have a diverse portfolio of real estate, investments and cash holdings, a financial advisor can recommend the most equitable way to distribute these assets without triggering major tax implications for your beneficiaries. They can also use their expertise to help estimate the value of your estate.
“Organizing your assets, possessions and intentions are the most important aspects of a good estate plan,” says Kates.
3. Establishes financial plans to carry out your wishes
A trust is a legal structure that protects assets, provides for beneficiaries and specifies under what conditions assets can be distributed.
By working with an estate attorney, a financial advisor can help establish a family trust or other plans that ensure your wishes are carried out after you’re gone.
- Consider this scenario: You want to establish a trust for your children, and you also want to maximize the returns on your investments inside the trust. An estate planning attorney will draft the trust documents, ensuring they comply with state laws. Then your financial planner steps in to offer advice on which investments and assets to place in the trust. This helps you benefit from professional tax planning strategies and potentially higher returns over time.
A financial planner can also ensure beneficiary designations are properly set up on retirement plans and life insurance policies. They can also help you open joint bank accounts or set up payable-on-death forms at your financial institution so those accounts avoid probate.
4. Helps you choose coverage plans
Life insurance and long-term care coverage are often folded into the estate planning process because they provide financial support to a policy owner’s family. But navigating the complex landscape of policy types, riders and coverage amounts can be daunting on your own.
An estate planning advisor can help you compare options and quotes from different providers so you secure the best coverage for your budget.
They’ll also assess how much life insurance you need and offer guidance on how to submit your application to the insurance company.
5. Maximizes tax benefits on charitable donations
If philanthropy is close to your heart, a financial advisor can provide valuable guidance on making the most of your charitable giving.
They can help structure contributions in a way that maximizes tax benefits. For example, a financial advisor may recommend utilizing a donor-advised fund, which lets you make contributions, receive an immediate tax deduction and then distribute funds to chosen charities over time. This not only streamlines the giving process but also offers significant tax advantages.
Tips for choosing a financial advisor for estate planning
You want to find a financial advisor with experience in the industry who can work alongside your estate planning attorney. A good advisor will identify risks in your financial plan, help you prioritize action items and explain any potential costs involved in the estate planning process.
As you begin your search for a financial advisor, keep these factors in mind.
- Credentials and experience: Look for advisors with relevant certifications, like the certified financial planner (CFP) designation. Make sure to ask about their experience in estate planning.
- Client referrals: Seek out reviews and testimonials from past clients. Referrals from friends and family can provide valuable insight too, as well as input from your tax advisor or attorney.
- Transparent fee structure: Understand how the advisor is compensated. Look for a fee-only fiduciary who is obligated to act in your best interest.
- Good communication: Estate planning can get complicated, so look for an advisor with good communication skills.
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Ask questions: Take advantage of any free consultations by interviewing potential advisors. If it doesn’t feel like a good fit, or you’re not getting the answers you need, move on to the next candidate.
Bottom line
Engaging a financial advisor in your estate planning journey is a smart move. Advisors ensure your investments, insurance and overall financial goals align with how you want your assets handled. From minimizing taxes to avoiding probate headaches, their guidance can save your loved ones time, money and stress.
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