Look, the last thing you probably want to think about is planning what happens when you’re not here any more.
But, without estate planning, you will leave unanswered questions about how to settle your affairs, and life for the people you leave behind could be even more difficult.
That’s why answering questions now—and formalizing them in an estate plan—is an important step that shouldn’t wait.
We’ve put together this estate planning guide to walk you through what to expect as you go through this lengthy, and sometimes complicated process.
Also – you don’t have to be rich to need estate planning. Your estate includes everything you own, and can be any size. This why it can be worth taking time to plan for what happens to it.
What is an estate plan?
Estate planning is the process of deciding who will inherit your assets and take care of your duties after you die or become incapacitated.
One purpose is to guarantee that assets are distributed in such a way that estate, gifts, income, and other taxes are minimized.
Estate planning can help you build a foundation you can tweak when your personal and financial circumstances change.
The most important topic to consider is how you want your assets transferred if you die or become incompetent.
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Benefits of having an estate plan
Several benefits come with having an estate plan. These include:
- Assists you in identifying someone you can trust to make decisions for you if you become unable to do so
- Make a plan for who will look after your minor children if you are unable to
- Aids in the reduction of estate and other transfer taxes
- Assists with the administration and planning of probate, the court-supervised procedure for valuing your estate, settling debts, paying taxes, and transferring assets to your heirs
Estate Planning Guide: 6 Steps You Need to Address
1. Asset titling
In financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash – Wikipedia
Joint titling of assets (Where you share ownership of an asset with someone else.) with rights of survivorship will leave the assets to the joint owner outside of probate.
But unless the joint owner is a spouse, joint titling may expose the assets to unwanted risk.
The surviving owner is not legally compelled to dispose of such assets according to instructions given in a will or trust. Also, if the instructions are followed, the surviving owner may incur gift tax repercussions.
Make sure to consult with your attorney to ensure that any titling is in line with your overall estate strategy.
2.Title With Care
Titles have specific legal meanings and typically take precedence over wills and trusts.
Because your assets may have been titled years ago when you first opened an account or made a purchase, it’s important to check and make sure that titling continues to reflect your intentions.
3. Naming Beneficiaries
When it comes to assets like retirement accounts, annuities, or insurance policies, you’ll be asked to name your beneficiaries – blood relatives or otherwise.
However, for non-retirement accounts, you won’t need to disclose this information because these assets pass according to your will’s distribution provisions.
If you own a revocable living trust, you can retitle your non-retirement accounts to your trust’s name (if you have one) or name a trust as a beneficiary.
You should seek your attorney’s counsel before naming beneficiaries on non-retirement accounts to ensure that they are consistent with your will and estate plan.
4.Powers of Attorney
You can also use a Power of Attorney to appoint someone to act on your behalf to execute our estate.
A POA might be drafted to take effect immediately or to activate only if you are unable to make decisions for yourself. Once signed, a durable POA goes into effect. At the time of death, all POAs will expire.
There are several types of POAs that you can use to authorize someone to act on your behalf:
- Financial POAs: These can be created for your bank or brokerage accounts. Make sure that any financial POAs are drafted to meet your financial institution’s requirements.
- Medical POAs: These are used to name a trusted person to make medical decisions for you.
- Medical directives: Though these are not technically POAs, they can be used to state what type of medical treatment you do or do not wish to receive if you are too ill to direct your care.
5. Life insurance
Life insurance is a critical part of your estate planning guide. Here are some good reasons you should consider taking out a life insurance policy for your dependents:
- Support to loved ones: In the event of your death, life insurance gives a death benefit that can assist your loved ones, replace your income, pay off the mortgage, or cover your children’s school.
- Terminal illness: If you become terminally ill, some policies allow you to obtain a portion of your policy benefit throughout your life. Insurance funds can assist you and your family in covering unexpected bills or medical costs at a time when you and your family are most vulnerable.
- Estate taxes: Insurance proceeds can provide liquidity (Converting assets or security into cash) if your estate has to pay estate taxes.
- Keep your business afloat: A life insurance policy can be used to settle outstanding business loans, offer financial stability after the sudden death of a key employee, or secure funds for a surviving owner to fund a buyout.
6. Will
A will specifies how you want your assets distributed, including items with both financial and sentimental value.
By creating a will, you can arrange for your possessions to be distributed and managed the way you want.
Even though some assets will pass to your designated beneficiaries or joint owners, repeating the instructions in your will can help prevent misunderstandings with other family members.
Benefits of having a will include:
- Appoint an executor: With a will, you can appoint an executor to administer your estate and the probate process, which is a court-supervised process for validating your will and distributing your assets.
- Choose a guardian for your kids: You can appoint a guardian for any minor children you have.
- Give instructions on how debts, taxes, probate fees, and other expenses should be paid.
- Specify how to pay for a family member’s living expenses during the probate process.
- Assign assets to a trust for the benefit of family members or other beneficiaries.
- Appoint someone to look after an incapacitated beneficiary’s finances.
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What you need to know when preparing a will.
When drafting your will, always ensure that it meets state-specific requirements, as this will determine its validity and the legality to enforce it.
You can have your will prepared or reviewed by a local estate planning attorney.
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7. Trusts
Depending on your situation, you may want to consider setting up a trust to indicate how you want assets distributed, and who you want to carry out your wishes.
A trust can be used to manage your assets if you become incapacitated or for your child if they are a minor. Trusts can also be used to reduce your estate tax bill and distribute assets without the cost, time delay, and publicity of probate.
You can set up a trust to hold many assets such as:
- bank account deposits
- real estate
- securities
- mutual fund shares
- ETFs
- limited partnerships
- life insurance
- personal property
What is a living trust?
A revocable living trust allows you to transfer asset ownership from your name to the trust while also naming yourself as the trustee. It is the most common type of trust used by people.
A living trust grants you the same access and control over your assets after you set up the trust as you did before. Assets can be bought, sold, traded, and moved in and out of the trust. You also have the assurance that your wishes will be carried out in the event of your death.
In the event of your death or if you are incapacitated, the trustee you named as your successor will take over the trust and manage it, paying taxes, managing assets, and distributing to beneficiaries according to your instructions.
Choosing a trustee
A vital aspect of estate planning is naming a successor trustee to handle your trust when you are no longer able to do so.
The ideal person will be able to carry out all the trust’s provisions, managing the trust’s assets and investments.
As well, they perform several administrative tasks, such as:
- record-keeping
- reporting
- taxes
They also maintain an unbiased relationship with the beneficiaries.
Selecting a successor trustee can be done in one of three ways.
You can name:
- an individual trustee, such as a family member or close friend
- a professional–corporate trustee
- a hybrid of the two, naming co-trustees who are both individuals and corporations
Estate Planning Guide: Steps for Drafting
Everything you own, no matter how insignificant, is considered your estate.
Taking inventory of what you have is the first step toward figuring out how to effectively protect it. To get started on your estate plan, follow these steps:
1. Take inventory
- Make a list of your home’s value and other real estate, as well as cars, jewelry, artwork, and other tangible possessions.
- Get your most recent bank, brokerage, and retirement account statements together.
- Include the location of any safety deposit boxes or safes, as well as the contents of any of them.
- Make a list of all of your insurance plans, including the cash values and death benefits.
- Make a list of all your debts, including mortgages, credit cards, and other loans.
2. Draft your estate plan
Prepare to meet with an estate planning attorney.
Some of the issues which are worthwhile considering when planning your estate with an attorney are:
- Who should inherit your assets, and in what proportions?
- Who should care for your children if they are minors?
- How much should you budget for your children’s care and education?
- Who should manage your financial affairs if you become incapacitated?
- Who should be responsible for distributing your assets?
Implement your plans
Once you have answered the questions outlined above with the guidance of your attorney, it’s time to take action!
This implies titling assets into the proper form of ownership, making appropriate beneficiary designations, and providing for asset management, if needed.
Update regularly
As time goes by, there may be a need to make adjustments to your estate based on changing conditions.
As such, you must review and update your documents and accounts as life events or changes in laws dictate.
The Estate Planning Guide: Conclusion
In conclusion, creating an estate plan is one of the most important steps you can take to ensure your financial affairs are handled according to your wishes.
This estate planning guide has outlined the key elements and considerations you need to navigate the process with clarity and confidence.
Remember, estate planning isn’t just for the wealthy—it’s for anyone who wants to protect their assets and provide peace of mind to their loved ones.
By taking action now, you’re not only safeguarding your legacy but also empowering yourself to face the future with a clear plan. Start today, and build a solid foundation for the years ahead!
Editor’s note: This article was originally published Feb 28, 2022 and has been updated to improve reader experience.
