Estate Planning Checklist: A 7-Step Guide To Getting Your Affairs In Order
An estate plan can give you peace of mind that your assets will be distributed according to your wishes when you die.
Estate planning is the process of designating who will receive your assets in the event of your death or incapacitation. Often done with guidance from an attorney, a well-constructed estate plan can help ensure that your heirs and beneficiaries receive assets in a way that manages and minimizes estate taxes, gift taxes and other tax impacts.
Estate Planning Checklist
Create an inventory.
Account for your family’s needs.
Establish your directives.
Review your beneficiaries.
Note your state’s estate tax laws.
Weigh the value of professional help.
Plan to reassess.
Seven steps to basic estate planning
1. Create an inventory
You may think you don't have enough to justify estate planning, but you might be surprised by the amount of stuff you actually own. Creating an inventory is a good way to get a handle on your tangible and intangible assets.
The tangible assets in an estate may include:
Homes, land or other real estate.
Vehicles including cars, motorcycles or boats.
Collectibles such as coins, art, antiques or trading cards.
Other personal possessions.
The intangible assets in an estate may include:
Checking and savings accounts and certificates of deposit.
Stocks, bonds and mutual funds.
Life insurance policies.
Retirement plans such as workplace 401(k) plans and individual retirement accounts.
Health savings accounts.
Ownership in a business.
You’ll also want to list any liabilities you may have outstanding. This could be mortgages, lines of credit or other debt that you haven’t paid off yet. Keeping a written list of your outstanding liabilities will make it easier for an estate executor to notify any creditors in the event of your death.
2. Account for your family's needs
Once you have a sense of what’s in your estate, think about how to protect the assets and your family after you're gone.
Write a will if you don’t already have one. There are even ways to create a will online.
Ensure you have enough life insurance. If your next question is "How much life insurance do I need?" it depends on factors such as whether you're married or if your current lifestyle requires dual incomes. Life insurance is especially important for those who have dependent children.
Name a guardian for your children — and a backup guardian, just in case — when you write your will. This can help sidestep costly family court fights that could drain your estate's assets.
3. Establish your directive
A complete estate plan includes important legal directives.
A trust might be appropriate. With a revocable living trust, you put your assets into a trust and select a trustee to manage the assets for your benefit (and that of your beneficiaries). If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing probate, which is the court process that may otherwise distribute your property. There's also the option to set up an irrevocable trust, which can't be changed or revoked by the creator.
A medical care directive, also known as a living will, spells out your wishes for medical care if you become unable to make those decisions yourself. You can also give a trusted person medical power of attorney for your health care, giving that person the authority to make decisions if you can't. These two documents are sometimes combined into one, known as an advance health care directive.
A durable financial power of attorney allows someone else to manage your financial affairs if you're medically unable to do so. Your designated agent, as directed in the document, can act on your behalf in legal and financial situations when you can't. This includes paying your bills and taxes, as well as accessing and managing your assets.
A limited power of attorney can be useful if the idea of turning over everything to someone else concerns you. This legal document does just what its name says: It imposes limits on the powers of your named representative. For example, you could grant the person the power to sign the documents on your behalf at the closing of a home sale or to sell a specific stock.
Be careful about who has your power of attorney. They may literally have your financial well-being — and even your life — in their hands. You might want to assign the medical and financial representation to different people, as well as a backup for each in case your primary choice is unavailable when needed.
4. Review your beneficiaries
Your will and other documents may spell out your wishes, but they may not be all-inclusive.
Check your retirement and insurance accounts. Retirement plans and insurance products usually have beneficiary designations that you need to keep track of and update as needed. Those beneficiary designations typically outweigh what's in a will.
Make sure the right people get your stuff. People sometimes forget the beneficiaries they named on policies or accounts established many years ago. If, for example, your ex-spouse is still a beneficiary on your life insurance policy, your current spouse might get none of the policy's payout after you're gone.
Don't leave any beneficiary sections blank. In that case, when an account goes through probate, it may be distributed based on the state's rules for who gets the property.
Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
5. Note your state's estate tax laws
Estate planning is often a way to minimize estate and inheritance taxes. But most people won't pay those taxes.
At the federal level, only very large estates are subject to estate taxes. The federal estate tax ranges from rates of 18% to 40% and generally only applies to assets over $12.06 million in 2022 or $12.92 million in 2023. What if you have an estate that surpasses the federal limits? You may want to consider a grantor retained annuity trust, or GRAT, a type of irrevocable trust that can help reduce the amount of taxes your heirs pay.
Some states have estate taxes. They may levy estate tax on estates valued below the federal government’s exemption amount. (See which states have an estate tax here.)
Some states have inheritance taxes. This means that the people who inherit your money may need to pay taxes on it. (Learn more about inheritance tax here.)
6. Weigh the value of professional help
Deciding whether you should hire an attorney or estate tax professional to help create your estate plan generally depends on your situation.
If your estate is small and your wishes are simple, an online or packaged will-writing program may be sufficient for your needs. These programs typically account for IRS and state-specific requirements and walk you through writing a will using an interview process about your life, finances and bequests. You can even update your homemade will as necessary.
If you have doubts about the process, it might be worthwhile to consult an estate planning attorney and possibly a tax advisor. They can help you determine if you're on the proper estate planning path, especially if you live in a state with its own estate or inheritance taxes.
For a large and complex estate — think special child care concerns, business issues or nonfamilial heirs — an estate attorney and/or tax professional can help maneuver the sometimes complicated implications.
7. Plan to reassess
Life changes. So should your estate plan.
Revisit your estate plan when your circumstances change, for better or for worse. This may include a marriage or divorce, the birth of a child, the loss of a loved one, getting a new job or being terminated.
Revisit your estate plan periodically even if your circumstances don’t change. Although your situation may be the same, laws may have changed.
It will take some effort to revise your plan, but take heart. The need to revise means you’ve already avoided the biggest estate planning mistake: never drafting a plan at all.
To learn more about how we can help, schedule an appointment online, or reach out to me at (716) 828-8390 or email nick@emergentwa.com to schedule a no-obligation conversation.
About Nick
Nick Efthemis is wealth advisor and chief compliance officer at Emergent Wealth Advisors, a fiduciary financial advisory firm serving retirees and pre-retirees with customized financial planning solutions. Having worked in the financial industry since 1997, Nick has deep knowledge and experience in retirement, investment, and comprehensive planning strategies, coupled with an understanding of the hopes, needs, and goals his clients have for their future. He is dedicated to helping his clients find confidence in their financial situation through personalized advice and support that empowers them to make the best decisions for their lives.
Nick is a CERTIFIED FINANCIAL PLANNER™ and a Chartered Retirement Plans SpecialistSM professional. Outside the office, Nick is an active member of his community, working with the SPCA and the Humane Society. In his free time, you can find him hiking or fishing with his family. If you want to learn more about Nick, connect with him on LinkedIn.