Understanding Estate Planning Tools

Eric M. Solve, CFP®, EA
Eric M. Solve, CFP®, EA
Understanding estate planning strategies such as beneficiary designations and wills helps you prepare for the future.

Estate planning is a crucial component of financial planning that should not be overlooked by any adult, regardless of age. Even if you think you’re too young to focus on how your assets will be distributed when you pass away, it’s important to remember that none of us knows what the future holds. Understanding estate planning and beginning the process now will help to ensure that your assets are distributed according to your wishes when you pass away. Beneficiary designations, wills, and revocable living trusts are common ways to distribute assets, and we’ll dig deeper into each so you can make informed decisions about how you may incorporate each into your estate plan.

Understanding Estate Planning: What is a Beneficiary Designation?

A beneficiary designation is a legally binding document that outlines the individuals or entities who will inherit your assets after your passing. It is most commonly used for assets such as retirement accounts, life insurance policies, pensions, and annuities. When you open one of these accounts, you will be asked to designate a beneficiary. You can name one or more beneficiaries, and you can specify the percentage of the account that each beneficiary will receive. It’s important to note that the beneficiaries you designate can be modified as your life circumstances evolve. In fact, it’s highly recommended that you review your beneficiaries on an annual basis to ensure that you don’t need to make any adjustments.

Perhaps the most significant benefit of utilizing a beneficiary designation is that it bypasses probate. Probate is the legal process of distributing assets after a person dies. It can be a lengthy and very expensive process, especially here in California. When you designate beneficiaries, you can circumvent the probate process entirely, which can not only save your beneficiaries time and money but also alleviate some of the emotional stress that accompanies a difficult period of grief.

SEE ALSO: Five Tips to Start Building Generational Wealth for Your Family


Understanding Estate Planning: What is a Will?

A will is a legally binding document that outlines how your assets will be distributed upon your death. It empowers you to name an executor who will be entrusted with fulfilling your wishes. With a will, you can specify which individuals or entities will inherit your assets, and you can also appoint guardians for any minor children under your care.

A will can be quite beneficial because it allows you to be very specific about your wishes. You can detail exactly who should receive each of your assets, and you can also include any special instructions or conditions. A will can also be updated at any time, which allows you to make changes if your circumstances change. Don’t think of writing your will as a one-time process. Rather, it should be a document that evolves with you as your life inevitably evolves, too.

Understanding Estate Planning: What is a Revocable Living Trust and Pour-Over Will?

Due to the very costly nature of probate, especially here in California where most of our clients live, it may also be helpful to utilize a revocable living trust with a pour-over will. A revocable living trust, also referred to simply as a “living trust,” is one that you use during your lifetime to manage and protect your assets. You get the benefit of acting as a trustee, if you wish and retaining control over any assets transferred to the trust. A pour-over will is a specific type of will often used in conjunction with a revocable living trust, to address any assets that were not included in the trust – whether by accident or on purpose. The pour-over will acts as a safety net, to help ensure that those assets are transferred to the trust and then distributed according to your intentions, rather than through the probate process.

Important Considerations for Understanding Estate Planning

As you work to better understand estate planning, it’s worth noting that many people employ a combination of several strategies to distribute their assets after their passing. For example, many of our clients utilize beneficiary designations for retirement accounts and life insurance policies, alongside a revocable living trust and pour-over will. As everyone’s circumstances are unique, so too are people’s estate plans. 

Here are several factors to consider:


As discussed, probate can be both costly and time-consuming. If you know you have assets that are likely to go through probate, a pour-over will with a living trust may be a smart choice.


A will is helpful if you have very specific wishes for the distribution of your assets.


If your goal is to speed up the process of distributing assets to your beneficiaries without any inconvenience, opting for beneficiary designations and a living trust could be suitable strategies.


Life can change quickly, and if you anticipate that your circumstances may change in the future, a will may be a wise choice. A will can be updated at any time, which allows you to make changes any time your life circumstances require it. Of course, if you want to give yourself a safety net, establishing a living trust with a pour-over will may be ideal.

SEE ALSO: These Cognitive Biases Could Sabotage Your Financial Planning


Understanding Estate Planning: Don’t Make This Common Mistake

Understanding estate planning options, like those mentioned above, is important. However, it’s also critical to understand how various estate planning tools interact with one another. An important point to remember is that your will won’t override your beneficiary designations. If you have your ex-spouse listed as your designated beneficiary, but then you update your will to state that your children should inherit the account, the law says that the beneficiary designation will stand in nearly all cases. Therefore, you will want to review and update beneficiaries on all accounts if/when changes are made to your estate documents.

Would You Like Assistance in Better Understanding Estate Planning?

Understanding estate planning is an important part of comprehensive financial planning, and you can use multiple tools to accomplish your wishes. It’s a good idea to consult with an estate planning attorney to help you make the right decision for your situation. With careful planning, you can ensure that your assets are distributed according to your wishes and that your loved ones are taken care of when you pass away.

If you’d like assistance in better understanding estate planning and how it fits into your overall financial plan, please schedule a discovery call with us today.

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at www.advisorinfo.sec.gov. Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions.

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