Estate planning introduction | Insurance| Financial literacy | Khan Academy

So let's talk a little bit about something that, frankly, I do not like to talk about and I don't think most people like to talk about. That's the notion of becoming very ill and dying, and then what happens to everyone that you leave behind.

To understand why this is an important scenario, let's imagine, and I'll just put myself in this scenario—hopefully this does not happen. Let's imagine a scenario where something like that happened to me and/or my wife without us doing any type of planning, any type of end-of-life planning, any type of estate planning.

You'd have a situation where, let's say—heaven forbid—we got into a car accident, and we are not in a position to make decisions on should we be put on life support forever. Should some experimental procedure be done? If we haven't given a healthcare proxy—and that's someone that you put in writing, usually someone like a partner or a family member or child—that can make a decision for you in the event that you can't make the decision for yourself.

If we have not done that, if we have ever not given a healthcare proxy, that is going to be somewhat arbitrary what's going to happen to us in that situation. It might not happen in a way that's good for us or in line with our wishes or in line with our family's wishes.

But let's say that that plays out, and then we die. Let's say I die and my wife isn't there. This is really a morbid situation, but if I do no estate planning, then all of the things that I own are then going to go into a court process known as probate. Probate is where the court tries to figure out, "Well, okay, Sal had all of this stuff. This is his estate."

His estate is both the things that he has but also the things that he owes. I might have assets, but I might owe money on a mortgage. I might have a car loan. I might have credit card debt. So the court, in the probate process, tries to figure out, "Okay, who's going to get the assets and who's going to be able to cover all of these liabilities, all of this debt that might be owed?"

It can be a long process in the interim in which my children or other folks that I care about—that ideally I would have liked to have access to those assets—don't have access to it. Sometimes it can be a little bit arbitrary because it's going to be decided by a court instead of me deciding ahead of time.

And then, just adding to that, if I haven't, or my wife hasn't, whoever has passed away, hasn't specified what happens to your children—if you have children who are still children—who's going to take care of them? If you haven't thought about that and specified it, then the court might decide just the nearest relative who may or may not want to take care of your kids. That might be, again, a sub-optimal situation.

So, in general, it's a good idea—especially once I would say you have real people depending on you—probably once you start to have a family, for someone to do end-of-life planning, estate planning. Now, some of you might think, "I'm a kid, I don't need to do this." Well, you could also talk to your parents about doing this so that that type of scenario does not play out in your own life.

It's important to sit, healthcare proxy—someone that you think understands what you want to happen or has values similar to yours—to be your proxy in a situation that you can't decide for yourself. It's important, at minimum, to have a will. A will will tell probate, "Hey, these are my wishes. I would like my children to get my stocks equally."

Or that one kid who didn't do it, didn't, um, has been rebellious—maybe they get a little bit less. I don't advocate that type of thing but, um, at least it becomes clearer so that when it goes through probate, it's going to happen.

Now, there are ways that you can actually really make things happen much quicker than even going through that probate process, and that's putting assets into something called a trust. A trust is an entity that assets can be put into, and essentially it's an entity that takes care—that uses those assets, especially once you're gone or if you're not in a position to manage them yourself—to then divvy it up amongst other folks.

So I can tell you that my family—we have created, we have put our assets—or not all of them, but a lot of them, the ones that are most important—into a trust so that if, worst case, myself and my wife die immediately, our children will have access to the assets and be able to manage the estate, so to speak.

And so, generally speaking, it's very important to do this planning ahead of time. There are other words that you're going to hear when you hear about estate planning. Beneficiary—well, that's the people who will benefit. Those are the people who are likely to—these are the people who are going to get the assets.

You're going to hear words like, uh, guardianship of minor children. Guardian—a guardian is a person who takes care of children who are not adults yet. But the very important thing to consider if you are an adult now, especially with people depending on you, is to do this planning.

And if you are not an adult, maybe you are in the care of other people, they might view it as a little bit self-serving, but it really is just prudent. Encourage them to think about these things, because I don't think anyone wants their loved ones to have to struggle in these situations or, just because of a little lack of planning, have to end up in a very, very sub-optimal situation.

Especially a time where they're already probably going to be dealing with things because you're an amazing person, and if you are gone, they're going to be very sad about that. You don't want them to also have to deal with the stress of dealing with probate, not having access to financial resources, having to live with family members that neither you nor they want to live with.

That can all be avoided with a little bit of planning.