7 minute read

The Importance of Financial Literacy (Yes, That Includes Estate Planning!)

April is Financial Literacy month - it’s the perfect time to brush up on the important aspects of Financial Planning & Estate Planning.

April is Financial Literacy Month, and it’s an excellent opportunity to share the importance of being educated and informed on the topic. Join us, as we take a dive into some of key aspects everyone should be aware of when it comes to understanding what, exactly, Financial Literacy means. 

We’re covering everything from Financial Planning to Estate Planning and more. Learn how taking charge of your Financial and Estate Planning efforts goes hand in hand. 

And if you're ready to start building your legacy, Download our Complete Guide to Creating Your Estate Plan. This guide will help answer any questions you may have while setting up your Will or Trust.

What is Financial Literacy? 

First things first...what is Financial Literacy? 

At the heart of it, Financial Literacy simply refers to having a deep understanding about personal finances, budgeting and even saving and planning for the future. It’s an essential skill for everyone, in that it allows us to effectively manage our money and strategically plan for our financial future. This means being prepared to make the best decisions possible about everything related to finances. 

While it’s easy to think of Financial Literacy as only having to do with things involving money, the reality is it extends far beyond just the balances in our checking and savings accounts. The more literate you become, the more you’ll realize how related Financial and Estate Planning are to one another. 

From comparing interest rates and promotional offers on credit cards, to transferring balances to take advantage of the best deals, to checking your credit report, to setting up a smart Estate Plan that protects you and your loved ones, to planning for taxes and other future financial needs, Financial Literacy can improve your life in so many ways. 

What You Should Know About Financial Planning

The most important thing to know about Financial Planning is that a good Financial Planner is worth their weight in gold. There simply is not any substitute for having expert guidance from somebody who has a fiduciary responsibility to you to keep your best interest at the heart of all their recommendations. Financial Planning allows you to set up strategic ways to:

  • Set up a budget

  • Save for retirement

  • Diversify your portfolio

  • Invest in income-earning vehicles 

  • Plan for future expenses (like college)

  • Purchase life insurance

  • Save for a house

  • Manage your risk

  • Balance liquidity (to ensure you have access to cash)

  • Plan for a future transfer of wealth

  • Understand about tax implications

  • And more...

What You Should Know About Estate Planning

Much like Financial Planning, Estate Planning is a way to prepare and protect yourself (and perhaps more importantly, your loved ones) for the future. Estate Planning should be recognized as an essential part of your life. It allows you to set up a plan that serves several purposes, including: 

  • Ensuring your wishes are understood

  • Guiding the courts (and your friends and family) about how your estate should be handled 

  • Planning for your financial future

  • Preparing for your beneficiaries

  • Making sure your wishes are known regarding future medical decisions

  • And more..

In order to be as competent as possible and to guarantee that all your needs are met, one of the most important parts of Estate Planning is understanding the roles that are associated with it.

Most Common Roles in Estate Planning

There are many roles and important components of Estate Planning, but a few are key and should be fully understood in order to take advantage of all they can offer. But, understanding the actual role that’ll be played is only part of the process. It’s also necessary to gain a deep understanding of how to select the best people for each job. We’ll cover all of this here. 

Beneficiary

The beneficiaries you name are the people who’ll eventually “benefit” from your estate. This can be friends, family members or even charitable organizations. Any comprehensive, effective Estate Plan can help you determine who should benefit from your estate and make it clear exactly how that should look. 

How to Choose Beneficiaries: Choosing beneficiaries is not difficult. You want to select the people or organizations in your life who are important to you, ones you want to help even when you’re no longer here to do it yourself. Spouses, children, friends, causes and organizations that are important to you can all be potential beneficiaries.

Executor

An Executor is the person who’ll be responsible for carrying out your wishes and instructions per your Will. Often this involves managing basic affairs regarding your estate. If you do not select an Executor, the court will do it for you and you’ll have no say in who oversees your estate after you pass away. 

How to Choose an Executor: You can choose any responsible, trusted friend or family member to be named Executor. Or, you could select a third party like a financial institution. You can also have Co-Executors, like a spouse as well as a Trust Company or bank. It’s OK to name an Executor who’s also a beneficiary of the estate. Keep in mind that whomever you name will have open access to all of your most personal financial records after you pass away, so you want to name someone trustworthy to fill the role.

Guardian

Appointing a guardian for your children or other dependents (including your pets!) is an important component of any Estate Plan. If you do not properly and legally name somebody to care for them in the event you’re ever unable to, you’ll have no input at all, and a guardian will be appointed by the court.

How to Choose a Guardian: People often agree that selecting a guardian for their children is the most difficult role to fill in their Estate Plan. We never want to think of not being available for those who are most vulnerable in our lives. But this is just something you don’t want to chance not being ready for. Choose a guardian who you’d literally trust with your life…or more importantly, with your children’s lives. 

A guardian should be a legal adult, stable - both emotionally and financially - responsible, caring and loving. Ideally, they should already have a relationship with your children. While location isn’t absolute, it is something you should consider. Would you want your children to be uprooted from the life they know and have to move to another town, state or country if something happens to you? Again, it’s not necessarily a deal breaker, but it’s definitely something to think about. 

Trustee

A Trustee is the person you appoint to manage and administer assets inside a Trust for the benefit of a third-party (a beneficiary). Choosing a Trustee is important because a lot of responsibility comes with the role. It should be somebody you can count on to make sound financial and other decisions that’ll be in the best interest of the Trust’s beneficiaries. Trustees essentially take full legal ownership over any assets that are held in a Trust. Their fiduciary responsibility is legal in nature and they are required to act on behalf of anyone who’ll benefit from the Trust. 

How to Choose a Trustee: Like most other roles in Estate Planning, the Trustee you select needs to be both responsible and trustworthy. You can opt for a close friend or family member, but it’s also common to choose a Professional Trustee. This can be a Trust Company, accountant or even your family attorney.

Power of Attorney

Appointing a Power of Attorney (POA) involves creating a legal document that names either an organization or a person (an agent) to have the authority to manage or act on your (the principal’s) behalf. 

Power of Attorneys can be financially focused, healthcare related or a combination of the two. You can name a basic POA, but note that this role would only be in effect as long as you’re of sound mind and health. If you want something that would stay in effect even if you were to become incapacitated for any reason, it’s important to ensure the document you’re creating is what’s known as “Durable.” 

Durable POAs will remain in place regardless of your health or mental capacity. A Conventional POA ends at incapacitation, death, if it’s revoked (by you) or if a court finds it invalid. There are a number of types of POAs to choose from, so be sure you understand what each authorizes and when it would be appropriate. 

How to Choose a POA: Because a Power of Attorney has such great responsibility and authority, choosing the right person is extremely important. While trust is an important factor to consider, you also want to pick somebody who: 

  • Is capable of serving as your agent

  • Would understand your wishes 

  • You’re confident who will fully understand, execute and respect what you want (even if you’re not there to tell them what that is 

You can choose any adult to act as POA - a friend, family member, business partner, accountant or even an attorney.

Taking the time to become Financially Literate is one of the best gifts you can give, not only to yourself, but also to your family and the legacy you’ll one day leave behind. Set up a solid Estate Plan today with a trusted service like Trust & Will. We’ve made the process comprehensive, simple, fast and affordable. 

With Trust & Will, you can create your Last Will and Testament and Trust and appoint guardians in a matter of minutes. Our state-specific, legal documents were created by lawyers and Estate Planning experts to give you the peace of mind and protection you deserve.

Download our Guide to Creating Your Estate Plan