The Basics of an Estate Plan

  June 7, 2023

6 steps to your estate plan

Help protect your family’s financial future

Estate planning is the process of designating who will receive your assets after you pass, documenting your health care directives and identifying who will care for your minor children. A Trust, Power of Attorney, and Advance Healthcare Directive are some of the most common documents all designed to document your wishes and give your heirs access to your assets. Your estate plan is a fluid process that should be updated as your personal and financial situations change. To help get your estate plan going, here are 6 steps to consider:

1. Make a list of your possessions

You may think you don’t have enough to justify an estate plan. But once you think about it, you might be surprised by all the tangible and intangible assets you have.

Your tangible assets may include:

  • Homes, land, or other real estate
  • Cars, motorcycles, boats, or other
  • Vehicles
  • Collectibles such as coins, art, antiques, or trading cards

Your intangible assets may include:

  • Checking and savings accounts and Certificates of deposit
  • Life insurance policies
  • Retirement plans such as 401(k)/403(b)/457(b) plans and IRAs
  • Stocks, bonds, and mutual funds

2. Review your beneficiaries

Retirement plans and insurance products usually have beneficiary designations that you need to keep track of and update as needed. Those beneficiary designations can outweigh what’s in a will. Keeping your beneficiaries up-to date will help ensure the right people get what you intend after you pass. People often forget the beneficiaries they named on policies or accounts established many years ago. For example, if your ex-spouse is still a beneficiary on your life insurance policy, your current spouse will not get the policy’s payout after you’re gone.

When naming your beneficiaries, you’ll want to designate the percentage of your account assets each beneficiary will receive. Also, make sure to name contingent beneficiaries. These secondary beneficiaries are next in line if your primary beneficiary dies before you do and you forgot to update your primary beneficiary designation(s). If you leave anything blank, an account may go through the probate process and be distributed based on the state’s rules. It’s a wise idea to maintain a list of all of your named beneficiaries along with the account and/or policy providers’ names and account numbers. Establishing and updating such a list is an important component of an estate plan list and makes it easy for your heirs to locate your assets after you pass on. Check out my Beneficiary Planning System designed to help make documenting and tracking of this important information easy.

3. Protect what you have

Once you have determined what’s in your estate, think about ways to protect your family and assets after you’re gone. A suitable amount of life insurance may be important if you’re married and your current lifestyle and/or monthly mortgage payment require dual incomes. Life insurance may also be important if you have college tuition bills or a child with special needs. You may want to document your wishes for your minor children’s care. Don’t assume that certain family members will share your child-raising ideas and goals. Additionally, don’t assume a judge will abide by your wishes if have not documented them and the issue goes to court.

4. Establish your directives

A complete estate plan includes important legal directives. This includes a trust/and or will, Power of Attorney (POA) and Advance Healthcare Directive (AHCD). A will is a written document that becomes effective only after your death and expresses your wishes which may include naming guardians of minor children and bequeathing objects and cash assets to relatives, friends, or charities. A trust is active the day it is validly executed, and a grantor can list the distribution of assets before his or her death. All wills must go through a legal process called probate. This process can be long and potentially contentious if family members contest the will. Trusts are not required to go through probate when the grantor dies, and they cannot be contested. With a living trust, you can designate portions of your estate to go toward certain things while you’re alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets are transferred to your designated beneficiaries.

You may also want to consider a power of attorney (POA) which is a legal document that gives someone the power to handle your financial affairs or gives legal rights so they can handle any of your non-heath or non-medical affairs if you become incapacitated. An advance healthcare directive (AHCD) states what medical actions should be taken if you become unable to make your own decisions.

5. Enlist the help of a professional

If your estate is small and your wishes are simple, an online or packaged will-writing program may be sufficient for your needs. If your estate is more complicated or you have any doubts about the process, consult an estate attorney and possibly a tax advisor. Don’t worry. more than 99% of estates don’t pay taxes!!

6. Plan on adjustments

Revisit your estate plan every 3-5 years or when your personal and financial circumstances change. This may include marriage, divorce, birth of a child, loss of a loved one, a new job, or being terminated. Even if your circumstances don’t change, you should periodically revisit your estate plan as laws may change.