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Estate planning can be complex and overwhelming.
However, we have some simple tips to help ensure that your finances and personal property are managed and distributed according to your wishes after passing away or incapacity.
Here are 18 basic tips to help you plan your estate.
#1. Start Early
Estate planning is much more than just a financial exercise. It’s a way to protect your belongings and the people you care about most down the line by distributing your wealth to them.
Start early, so you can account for everything before a surprise comes your way. Tying the knot or having kids are two times to put those estate plans in motion.
#2. Make A List Of Assets
Make a list of all your belongings, including real estate, bank accounts, stocks, and other investments. This will help you understand the full extent of your estate and make informed decisions about its distribution. Listing your belongings also helps you determine which assets should be grouped or left to a particular person.
Most estate plans overlook the importance of a master sheet with all the belongings owned, account names, and passwords. This list will help your loved ones ensure they have access to the accounts and don’t forget about any of them.
#3. Determine Your Goals
Think about your goals and what you want to achieve with your estate plan. Consider factors such as providing for your family, minimizing taxes and costs, and preserving your legacy.
Knowing what you want your estate, businesses, and legacy to be when you are no longer around will help you choose the right people to manage your estate.
#4. Create A Last Will
As seen above, a will is an important tool that helps your family distribute the wealth you left behind without struggle. A last will outlines your plans for distributing your assets after death.
Make sure your will is up-to-date and reflects your current wishes and circumstances. Working with an experienced attorney when writing your will, will help you create a comprehensive and clear document to communicate your goals.
#5. Consider A Trust
A trust can provide various benefits, such as tax planning, asset protection, and providing for minors or individuals with special needs. Consult with an attorney to determine if a trust is right for you.
There are two main types of trusts, an irrevocable trust, which has tax benefits, and a revocable trust, which usually does not have tax benefits. But taxes should not be the only reason to consider one or the other, as they both have features that could make sense for your finances. The attorney will also guide you on how to set up the trust.
#6. Name Beneficiaries
Ensure you have named beneficiaries for all your accounts, including bank accounts, savings accounts, investment and retirement accounts, and life insurance policies. This will help ensure that the funds in the accounts are transferred quickly and efficiently after passing.
It also clears misunderstandings about who should inherit what in your family, including minor children.
#7. Consider Durable Power Of Attorney
A power of attorney is a legal document that gives another individual the authority to act on your behalf in the event of incapacity. Consider naming a trusted family member or friend as your power of attorney.
Choosing someone to name as your power of attorney requires careful consideration because it is important in managing your estate.
#8. Plan For Incapacity
Planning an estate should focus on death and the possibility of incapacity. Consider creating an advance directive, also known as a living will to outline your desires for medical treatment in the event of incapacity.
Living wills ensure that your family has directives on handling your health care and medical needs in case anything happens. It also provides the financial means to take care of things in the family in case you cannot act on your own behalf.
#9. Review Your Estate Plan Regularly
Estate planning is not a one-time event but an ongoing process. It is important to review your plan regularly and make updates as necessary to reflect changes over time. You could have a different perspective later as you age and decide to change how you want to redistribute your wealth once you are gone.
Reviewing the plan regularly allows you to make the best decisions on your estate management and legacy.
#10. Consult With An Attorney
Planning your estate can be complex, and it is important to consult a qualified attorney to ensure your plan is effective and compliant with the law. An attorney can help advise on the best strategy for your unique circumstances and goals, as each individual’s estate is different.
Some people might want to create these documents for free online or even write out their wishes on the back of a napkin. But all states have specific laws on how to handle the death of a person, and each has its own probate process.
As interesting as it was on television to see someone write their will on a mirror with lipstick, this might not be legally binding in some states.
#11. Plan For Long-Term Care
Consider the potential costs of long-term care and how you would like to cover these expenses if needed. Options include long-term care insurance, Medicaid planning, and using your assets to pay for care.
With the cost of health care increasing rapidly, having long-term care is essential.
#12. HIPPA Authorization
A HIPAA authorization is a legal document that allows you to authorize individuals to access your protected health information. Additionally, you have control over the types of information that you authorize them to access.
According to Michael Reynolds, CFP®️ of Elevation Financial, “It is important to have your HIPAA authorization document properly executed, which means that it must be signed and witnessed in accordance with the laws of your state.”
#13. Consider Digital Assets
If your estate consists of digital assets, such as online accounts, email, and social media profiles, you need to have a plan for these.
Most people overlook these and only focus on real property like their homes and investment accounts. Make sure you have a plan for managing and distributing these after death or incapacity.
#14. Plan For Business Succession
If you own a business, it is vital to have a plan for its succession in the event of your death or incapacitation.
This can include the transfer of ownership, management, and control to a trusted family member or employee.
#15. Minimize Estate And Inheritance Taxes
Taxes can significantly reduce the value of your estate. Consider strategies to minimize these taxes, such as using a living trust. Be sure to know your state laws because, in some states, a living trust will not reduce the tax liability.
Another option is to make annual gifts to your loved ones. Gift taxes are involved if you gift over a certain amount. Otherwise, the transfer of assets is tax-free. Using the help of an attorney or a tax advisor could help you move things around to minimize taxes.
#16. Plan For Special Needs
If you have a loved one with special needs, it is important to consider their long-term care and financial security in your estate plan.
This may involve creating a special needs trust or working with a financial planner to meet their needs.
#17. Choose An Executor Carefully
The executor of your will is responsible for managing the distribution of your assets and ensuring that your desires are carried out.
Choose someone trustworthy, responsible, and capable of handling this critical role.
#18. Update Your Plan And Financial Affairs After Life Changes
Significant life changes, such as marriage, divorce, the birth of a child, or the death of a beneficiary, can impact your estate plan.
Review and update your plan as necessary when circumstances change.
#19. Avoid Basic Mistakes
Because of the complexity of transferring your belonging when you pass, there are some mistakes that professionals see time and time again, according to Spenser Liszt, CFP®, CCFC, an advisor with Paradigm Advisors, LLC.
The most common include:
- Not signing documents
- Not having a safe place to store the documents
- Failing to notify executors and powers of attorneys of their appointment and provide copies of the documents
- Failing to draft funeral instructions
- Not reviewing documents regularly
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.