Life’s unpredictable. One day you’re cruising along, and the next, you’re hit with a curveball. That’s why estate planning matters, influencing your personal finance approach. But when should you start thinking about it? Let’s break down when to do estate planning so you can be prepared for whatever comes your way and achieve your financial goals.
Why Estate Planning Is Important
Estate planning isn’t just for the wealthy; it’s a crucial component of sound wealth management for everyone. It’s for anyone who wants to protect their assets and provide for their loved ones and family members. Without an estate plan, your assets could end up in probate court, a public process that can be lengthy, expensive, and stressful for your loved ones.
A well-structured estate plan helps you control how your assets are distributed after your death, ensuring your wishes are followed. It can also significantly ease the burden on your family during an already difficult time by streamlining the estate administration. Proper planning can also minimize potential estate tax liabilities and other estate taxes, preserving more of your wealth for your beneficiaries.
Furthermore, comprehensive estate planning addresses what happens if you become incapacitated and unable to make decisions for yourself. It allows you to appoint trusted individuals to manage your financial affairs and make health care decisions on your behalf. This forethought provides peace of mind, knowing your affairs and well-being are in capable hands.
When to Start Estate Planning
The simplest answer to “when should you start estate planning?” is right now. However, specific life events often trigger the need to create or update your estate plans.
Understanding these moments is key to effective wealth planning:
1. You’ve Just Turned 18
Surprisingly, the estate planning process can begin when you legally become an adult at age 18. At this point, your parents can no longer automatically make medical or financial decisions for you. While you might not have significant assets, this is an ideal time to establish foundational documents.
Consider creating a durable power of attorney for finances, allowing someone to manage your bank accounts or savings account if you cannot. A health care proxy (or medical power of attorney) lets you designate someone to make health care decisions for you if you’re incapacitated. These simple steps are an important introduction to responsible personal finance and planning.
2. You’re Starting Your First Job
Landing your first significant job is a major step toward financial independence and a good time to think about your estate plan. You’re beginning to accumulate assets, perhaps through a company retirement plan or by opening new savings accounts. Even if your assets are modest, it’s wise to consider who would inherit them.
Explore any life insurance policies offered by your employer and designate beneficiaries for these and your retirement plan assets. This is an early stage of building your financial foundation and can be discussed with financial advisors to align with long-term financial goals. It’s a good time to consider your first formal estate plans.
3. You’re Getting Married
Marriage is a joyous life event that significantly alters your legal and financial landscape, making it a critical time to update or create an estate plan. Your new spouse will likely become a primary beneficiary and decision-maker. This change necessitates a review of all existing estate planning documents and beneficiary designations.
Update beneficiaries on bank accounts, life insurance policies, and retirement plan assets to reflect your new marital status. You may also want to create or update your will to include your spouse and consider how jointly owned real estate or other assets will be handled. Some couples also discuss prenuptial agreements, which can interact with estate planning decisions.
4. You’re Having a Baby
The arrival of a child is perhaps one of the most compelling reasons to engage in thorough estate planning. Your primary concern will be ensuring your child is cared for if something happens to you and your spouse. Naming a guardian for your minor child in your will is an essential part of this planning process.
Consider setting up a trust to manage assets for your child’s benefit, controlling how and when they receive their inheritance. Review and potentially increase your life insurance coverage to provide for your growing family’s needs, including future expenses like college savings. These planning decisions are vital for your child’s security.
5. You’re Buying a House
Purchasing a home is often the largest financial investment an individual or family makes, making it a crucial element of your estate plan. How your real estate is titled has significant implications for how it passes upon your death. Proper planning can help avoid complications for your heirs.
Consider how you want your home to be handled if you pass away. Placing your real estate into a trust is a common strategy to bypass probate, potentially saving your estate time and money. This decision should align with your overall wealth strategies and protect assets.
6. You’re Getting Divorced
Divorce is a significant life event that requires a complete overhaul of your estate plan. Previous documents likely named your ex-spouse as a beneficiary or fiduciary. It’s essential to update your will, trusts, powers of attorney, and health care proxy to reflect your new circumstances.
Beneficiary designations on life insurance policies, retirement plan assets, and bank accounts must be changed, as these often override a will. If you have children, guardianship arrangements may need review. This is a critical time to make new planning decisions to protect your assets and ensure your wishes are accurately represented.
7. You’re Approaching Retirement
As retirement planning intensifies, so too should your focus on your estate plan. By this stage, you’ve likely accumulated significant assets, including substantial retirement plan assets and potentially a diverse investment portfolio possibly including mutual funds. Your financial goals may be shifting from accumulation to preservation and distribution.
Review your entire estate plan with financial advisors to ensure it aligns with your retirement income strategy and minimizes potential estate tax and inheritance tax. This is also the time to seriously consider long-term care planning, as extended health care needs can deplete assets quickly. Sophisticated estate planning strategies might be necessary to protect assets for your family members and chosen beneficiaries.
Discussions about social security benefits and how they integrate with your overall financial picture are also relevant. Your investment management approach might also change as you near retirement, potentially impacting your estate’s value and composition. Proper planning ensures your legacy is preserved and your loved ones are secure.
8. You’ve Been Diagnosed with a Serious Illness
A serious illness diagnosis often prompts an urgent review of one’s affairs, emphasizing the importance of having clear health care decisions documented. This includes ensuring your health care proxy and living will accurately reflect your current wishes regarding medical treatment and end-of-life care decisions. Communication with your designated agents is crucial.
Beyond health directives, consider how your assets will be managed if you become incapacitated. A revocable living trust can allow a successor trustee to manage your financial affairs, including bank accounts and investments, seamlessly. This planning can alleviate stress for your family members during a challenging period and help protect assets.
9. You’ve Inherited Money or Assets
Receiving an inheritance can significantly impact your financial standing and necessitate an update to your estate plan. This new wealth might alter your financial goals and how you wish your assets to be distributed. It’s important to integrate these new assets into your overall wealth planning strategy.
Consult with financial advisors regarding investment management for the inherited assets and consider the potential income tax or capital gains tax implications. Depending on the size and nature of the inheritance, you might explore advanced estate planning strategies, such as trusts or a family limited partnership, to protect these assets and manage future tax liabilities, including federal estate tax or state-level estate tax. Understanding any applicable inheritance tax is also key.
10. You’re Moving to a New State
State laws governing estates, trusts, and taxes vary considerably. If you move to a new state, it’s essential to have your estate plan reviewed by an attorney familiar with the laws of your new jurisdiction. Documents valid in one state might not be fully effective or optimal in another.
This review is particularly important for your will, powers of attorney, and health care proxy. Differences in state-level estate tax rules, community property laws versus common law, and procedural requirements for executing documents can all affect your plan. A local estate planner can help ensure your estate planning strategies remain effective.
Key Components of an Estate Plan
Now that we’ve discussed when to engage in estate planning, let’s outline what a comprehensive estate plan might include. The specifics will vary based on your individual circumstances, financial goals, and applicable legal and/or tax considerations. A robust plan generally contains several core documents.
- Will: A last will and testament is a legal document outlining how you want your assets distributed after your death. It also allows you to name an executor to manage your estate and a guardian for any minor children. However, a will typically goes through probate court.
- Trust: Various types of trusts (e.g., revocable living trusts, irrevocable trusts) can serve multiple purposes. These include helping to bypass probate, providing for asset management in case of incapacity, protecting assets for beneficiaries, and potentially reducing estate taxes. Trusts are flexible tools in advanced estate planning strategies.
- Financial Power of Attorney: This document grants someone you trust (your agent or attorney-in-fact) the authority to make financial decisions and manage your financial affairs if you become unable to do so. A durable financial power of attorney remains in effect even if you become incapacitated, covering bank accounts, real estate, and investments.
- Health Care Proxy (or Medical Power of Attorney): This appoints an agent to make health care decisions for you if you are incapacitated and cannot communicate your wishes. It is a vital part of care planning, ensuring your preferences for medical treatment are respected.
- Living Will (or Advance Directive): This document specifies your wishes regarding end-of-life medical treatment, such as life support. It guides your health care proxy and medical providers in making care decisions aligned with your values.
- Beneficiary Designations: These are crucial for assets like life insurance policies, retirement plan assets (e.g., 401(k)s, IRAs), and certain bank accounts or savings accounts (Payable on Death – POD, Transfer on Death – TOD). Beneficiary designations typically override instructions in a will for those specific assets, so keeping them updated is essential.
How Often Should You Update Your Estate Plan?
Estate planning is not a set-it-and-forget-it activity; it’s an ongoing part of your personal finance journey. Life is dynamic, and your estate plan should adapt to reflect these changes. As a general guideline, review your plan with your estate planner or financial advisor every three to five years.
However, do not wait for the scheduled review if significant life events occur. Major changes such as births, deaths, marriages, divorces, a substantial change in your financial situation (like starting a small business or a large inheritance), or changes in your beneficiaries’ lives warrant an immediate review. Changes in tax laws, like adjustments to the federal estate tax exclusion or state-level estate tax rules, can also necessitate updates to your estate planning strategies.
Regularly reviewing and updating your plan ensures it remains effective and accurately reflects your current wishes and financial goals. This proactive approach is central to proper planning and responsible wealth management.
Common Estate Planning Mistakes to Avoid
Even with good intentions, individuals can make errors in their estate planning process that can lead to unintended consequences, family disputes, or increased costs for their estate. Awareness of these common pitfalls can help you create a more effective plan. Working with experienced financial advisors and estate planners can help prevent these issues.
- Not having any estate plan at all, leaving decisions to state intestacy laws and probate court.
- Forgetting to update beneficiary designations on life insurance policies, retirement accounts, and bank accounts after major life events like marriage or divorce.
- Failing to plan for incapacity with a durable financial power of attorney and health care proxy, leading to court-appointed guardianship.
- Improperly funding a trust, meaning assets are not correctly transferred into the trust’s name, thereby negating many of its benefits like avoiding probate.
- Not considering the impact of various taxes, such as estate tax, inheritance tax, income tax, and capital gains tax, on the estate and beneficiaries.
- Choosing an inappropriate executor, trustee, or agent who may lack the skills, time, or integrity to manage your affairs or who may have conflicts of interest.
- Lack of communication with family members about your plans and wishes, which can lead to confusion and disputes after your passing.
- Overlooking digital assets, such as online accounts, cryptocurrency, and social media profiles, which may have financial or sentimental value.
- Assuming that a will is sufficient to cover all assets or to bypass probate for everything, without understanding how asset titling works.
- Not accounting for the needs of blended families or beneficiaries with special needs, which often require specialized planning decisions.
DIY vs. Professional Estate Planning
In today’s digital age, do-it-yourself estate planning websites and software are readily available and can seem like a cost-effective option. For individuals with very simple financial situations and straightforward wishes, a DIY approach for basic documents like a simple will might suffice. However, estate planning can involve intricate legal and financial nuances that generic software may not address.
If your circumstances include owning real estate, a small business, significant assets, blended family considerations, beneficiaries with special needs, or concerns about estate taxes, consulting with an experienced estate planning attorney is highly recommended. An estate planning attorney can provide legal advice tailored to your specific situation and ensure your documents comply with current state laws. Additionally, financial advisors can assist with aligning your estate plan with your broader financial goals, retirement planning, and investment management strategies.
Professionals can help identify potential issues you might overlook, such as tax implications (income tax, capital gains tax, estate tax exclusion) or the best ways to protect assets. The planning process with an expert involves understanding your objectives and crafting solutions that reflect your wishes accurately, navigating potential legal and/or tax hurdles.
While DIY might seem cheaper initially, errors can lead to much greater expenses and complications later, undermining your attempts to provide for your family members and bypass probate.
Estate Planning for Business Owners
If you own a small business, your estate plan requires special consideration to address its continuity and value. Succession planning is a critical component, determining who will take over the business, how ownership will be transferred, and how the business will be valued. Without a clear plan, your business could face significant disruption or failure upon your death or incapacity.
A buy-sell agreement is a vital tool for business owners, outlining what happens to a departing owner’s share of the business. This agreement can be funded with life insurance policies to provide liquidity for the buyout. Other structures, like a family limited partnership or other types of limited partnership, might be considered for asset protection and facilitating the transfer of business interests to family members as part of your wealth planning and estate tax minimization strategies.
Your business is often a substantial part of your financial legacy and tied to your financial goals. Integrating your business succession plan with your personal estate plan, often with the help of financial advisors and legal counsel specializing in small business issues, is crucial for protecting its value and ensuring a smooth transition that benefits your family members and business partners. These estate planning decisions can also impact your retirement plan if the business value is a key part of your retirement income.
How Bumbaugh | George | Prather | DeDiana Can Help With Estate Planning
No matter where you are in life—whether you’re just starting your career, building a family, planning for retirement, or navigating a major life transition—Bumbaugh | George | Prather | DeDiana is here to help you build a thoughtful, legally sound estate plan that protects your assets and supports your long-term goals.
Located in Westmoreland County and serving Allegheny County and the broader Southwestern Pennsylvania region, our firm offers decades of experience in Pennsylvania estate law. We understand how local laws affect everything from probate procedures and inheritance tax to real estate titling and trust administration. More importantly, we take the time to understand your life—your values, family dynamics, financial priorities, and goals—so we can help craft a plan that reflects your unique circumstances.
Our Estate Planning Services Include:
- Last Will and Testament – Clearly outline how your assets should be distributed and who should care for minor children.
- Revocable Living Trusts – Help you avoid probate, maintain privacy, and manage your assets in the event of incapacity.
- Powers of Attorney – Authorize someone you trust to handle your financial or legal matters if you can’t.
- Health Care Proxies and Living Wills – Make sure your medical wishes are honored, even if you’re unable to communicate them.
- Estate Tax Planning and Wealth Transfer Strategies – Minimize tax burdens and preserve more of your estate for your beneficiaries.
- Business Succession Planning – Ensure your small business transitions smoothly in the event of your death or incapacity.
We also offer support with estate administration and probate for families who are managing a loved one’s affairs after death.
What sets Bumbaugh | George | Prather | DeDiana apart is our commitment to personalized, practical advice. Whether you’re setting up a basic will or navigating complex trust structures, you’ll have direct access to attorneys who take the time to listen and guide you through the process with clarity and care.
Your estate plan should evolve as your life does. That’s why we also offer ongoing guidance, making it easy to update your plan after major life events like marriage, childbirth, home purchases, or retirement.
If you’re wondering when to start estate planning, the answer is: now. And if you’re asking who can help you do it right, we’re ready when you are.
Final Thoughts
So, when to do estate planning? The answer is clear: the best time to start is now, and it’s important to keep your plan updated throughout your life. Life is full of diverse life events and changes, from starting a career and family to retirement planning and beyond; your estate plan must evolve accordingly. Don’t wait for a “perfect” moment or a crisis to begin the planning process.
Remember, creating an estate plan is not solely about what happens after you’re gone; it’s a proactive step in responsible personal finance and wealth management. It provides for your loved ones, protects your hard-earned assets, and ensures your health care decisions are respected if you cannot speak for yourself. Taking that first step towards proper planning today will offer security and peace of mind for you and your family members for years to come; your future self will indeed be grateful.
Frequently Asked Questions About When To Do Estate Planning
When should I start estate planning?
The best time to start estate planning is as soon as you’re a legal adult—typically at age 18. Even if you don’t have significant assets, creating documents like a health care proxy and power of attorney ensures someone can legally make decisions on your behalf in case of an emergency.
Do I need an estate plan if I’m young and healthy?
Yes. Estate planning isn’t just about distributing wealth after death—it also protects you in life. If you become incapacitated, having legal documents in place ensures that your wishes are followed and someone you trust can manage your medical and financial affairs.
What life events should prompt me to create or update my estate plan?
You should create or revisit your estate plan when you:
- Get married or divorced
- Have a child or adopt
- Buy a home or other significant asset
- Start or sell a business
- Receive an inheritance
- Move to a new state
- Are diagnosed with a serious illness
- Approach retirement
How often should I review or update my estate plan?
It’s recommended to review your estate plan every 3–5 years, or immediately after a major life change. Regular updates ensure your plan reflects your current family, financial situation, and legal requirements—especially changes in Pennsylvania estate laws or federal tax laws.
Is it ever too late to start estate planning?
No. While earlier is better, it’s never too late to take control of your future. Even if you’re approaching retirement or facing health concerns, putting a plan in place can protect your assets, ease the burden on loved ones, and make sure your wishes are honored.
