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Estate planning introduction

Estate planning is when you make a plan for what will happen to your things, like your money or your house, after you pass away. This helps make sure your wishes are followed and can make things easier for your family. Created by Sal Khan.

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Video transcript

- 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, and that's the notion of becoming very ill and dying, and then what happens to everyone that you leave behind? And 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 a 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 not given a healthcare proxy, then it's going to be somewhat arbitrary what's going to happen to us in that situation, and 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 let's say 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. And probate is where the court tries to figure out, well, okay, Sal had all of this stuff. This is his estate, and 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 owned? And it can be a long process in the interim in which my children or other folks that I care about that ideally I would've liked to have access to those assets don't have access to it. And sometimes it can be a little bit arbitrary 'cause it's gonna 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 a court might decide just the nearest relative who may or may not want to take care of your kids, and that might be, again, a suboptimal 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, "Ah, I'm a kid. "I don't need to do this." Well, you can also talk to your parents about doing this so that that type of scenario does not play out in your own life. And so it's important to set a 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 has been rebellious, maybe they get a little bit less. I don't advocate that type of thing, but at least it becomes clearer so that when it goes through probate, it's going to happen. Now, there's 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 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 are that the most important ones 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's 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 guardianship of minor children, guardian. A guardian is the 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 suboptimal situation, especially at a time where they're already probably going to be dealing with things. Because you are an amazing person and if you are gone, they're going to be very sad about that and 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 wanna live with. That can all be avoided with a little bit of planning.