Most people assume that estate planning is only for the wealth. After all, there is the belief that estate plans are designed to help large estates avoid paying taxes when the owner dies. You should realize, though, that good estate planning can be helpful for anyone. When you have an estate plan, your wishes are made known, and you can structure your finances so that your desires are followed if you become incapacitated (but  still alive).

An estate plan has three main parts:
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This is a guest post from Evan of My Journey to Millions.

Like life insurance, someone’s Last Will and Testament is often forgotten about for years. The documents are relegated to the back of the filing cabinet only to see the light of day after something horrible has happened. If I had to give a guess as to why, it probably has to do with the fact that those two items do not effect your day to day life such as over paying for your car insurance or having high interest credit card debt.

Part of every person’s financial review should be a re-reading of their Last Will and Testament. While I may read 4 to 8 Wills a week I can understand why reading one’s own will is not an enjoyable experience. First of all they are usually written in a foreign language known often referred to as legalese, but more importantly it forces you to think about your death and possibly your family’s death. While I can’t make the experience a better one, I can at least provide you with questions to think about when you are reviewing your Last Will and Testament.

In general, there is only one thing worst than dying… it’s thinking about dying. If there is one thing worse than actually dying and thinking about dying, it’s probably planning on dying. I think it’s safe to say that the whole business of dying is all together unpleasant and one of the reasons why people avoid thinking and talking about it.

Unfortunately, it’s also one of the biggest financial mistakes you can make for your family. I’d say it’s the biggest financial mistake you can make but if you’re dead, I suppose the consequences are pretty inconsequential to you anyway. But unless you just don’t care about your family, making a few end of life decisions before it’s the actual end of your life can simplify things for your family.

So today we’ll discuss six documents you need but absolutely hate thinking about.
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It’s always tricky remembering how long I should keep financial documents so recently I began cheating by electronically scanning all my documents to my hard drive. I was able to save all the documents I really didn’t need, but was apprehensive about shredding forever, and created electronic backups for the documents I knew I should keep. It was the best of both worlds.

The end result, though, was a collection of poorly organized files. To help me create a system, I began reading online. When the NY Times Bucks blog talked to Alicia Rockmore, co-founder of Buttoned Up, she recommended a year-based file system.

“Have one file for everything that is tax- or finance-related per year,” she said. Then, download electronic records available online to the files and scan in paper copies of other documents as well.

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We recently purchased a sheet-fed scanner, the Fujitsu ScanSnap S300, to help organize our financial records and this purchase is easily one of the top ten I’ve made in my adult life. We went from having a few banker’s boxes of documents down to just a few in about a week. Using a sheet-fed scanner, versus a flat-bed scanner like a copier, can save you a ridiculous amount of time and the ScanSnap will save your document into a PDF. It’s a big pricey but definitely worth it if you’re looking to save things electronically.

One of the benefits of storing documents electronically is that it makes the “how long should I keep financial documents?” question a bit obsolete. Data storage is cheap so you can save documents forever, but I think it’s still important to know how long to keep documents because it gives you a better understanding of finances. Knowing why you should keep tax records for seven years gives you a better understanding of the tax process.

So how long should you keep financial documents? It depends.

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This week, the House of Representatives passed H.R.4154, titled the “Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009.” HR 4154 would amend the Internal Revenue Code to prevent the repeal of the estate tax next year. Under current law, there would be no estate tax for 2010 and your estate would transfer tax free to your heirs.

What is in the House bill? Thought many expect the bill not to pass in the Senate, the House bill exempts the first $3.5 million of a person’s estate and the first $1 million in gifts. Then the highest rate applied to the taxable portion of the estate would be 45%. CNN Money does some morbid math and claims that of the 2.5 million Americans expected to die in 2009, only 0.25% (5,500) have estates large enough to be taxable.

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It’s not easy thinking about Wills because doing so forces you to confront your mortality and that one day you will die. However, if you do not take care of this very important piece of business, the State will take care of it for you. In every state there are rules that dictate what will happen to your assets in the event of your death. Unfortunately, they may not match what you’d choose to do with it (chances are they don’t). Creating a Will is one of the most important and significant actions you can do for your finances and shouldn’t be put off. The preparation of Wills is big business too and can cost quite a large sum in lawyer fees, but there’s a way to significantly cut your costs – Suze Orman’s Will & Trust Kit.

My tentative plan is to create a Will with Suze Orman’s system and then get it reviewed by a lawyer. By having at least a draft, you save a ton of money on the hours that would’ve been spent preparing it. What makes this even better is that the kit is free for a limited time (meaning I have no idea how long it’ll last).

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I am engaged but not yet married, I have no kids, and I don’t have a lot of assets, do I need a will? That’s the question I asked myself after reading the do-it-yourself wills and trusts article I posted yesterday morning. Right now, the answer is no. However, when I get married and definitely by the time we have children, we will want to have a will in place to outline where my assets will go in the event of my death.

What happens if I don’t have one and I die? Then I die intestate, which means the distribution of my assets will depend on the laws of the great state of Maryland and that distribution will likely take a long long time. The process is called administration and it’s governed by the probate court. So, having a will, especially if it can be prepared with a $40 piece of software, makes life a lot easier in a time that is likely going to be very rough.

It’s a little morbid talking about one’s own mortality but sometimes you have to get over that and get down to business. People die and it’s best that they be considerate when doing so!