Estate plans are essential to minimizing conflict, protecting families, and providing financial security during incapacity or after death. While many find estate planning an unpleasant topic, taking the following steps can help minimize the pain of the process.
STEP 1: OUTLINE YOUR PLAN
At a basic level, every estate plan should consider the following fundamental questions. Outlining your general responses to these questions can help kick-start your planning.
- Who Should Receive My Estate? Decide who you want to receive your estate, especially if you wish to make bequests of cash or certain assets to specific individuals. Without a will, your estate (other than assets that pass by a beneficiary designation or based on title (see below)) will be distributed according to state intestacy laws, which provide no direction on the distribution of specific assets and may run counter to your wishes. A will also can facilitate any required court administration of your estate (so-called “probate”). You may avoid probate all together by using a combination of a will and revocable trust.
- Who Should Be in Charge of My Estate? Identify the persons who you want to serve as (a) personal representatives to handle the administration and distribution of your estate, (b) guardians for any minor children, and (3) trustees to administer any trusts you may want created for your family. Being clear on these choices can minimize family conflict and streamline estate matters after your passing.
- What Happens if I’m Incapacitated? Your estate plan should address what happens if you become incapacitated, through the execution of financial and medical powers of attorney, living wills or advanced directives, and HIPAA authorizations. You should identify the individuals you want to name as your agents to make your financial and medical decisions if you are unable to do so, as well as clearly specify your preferences for health and medical care. If you become incapacitated, these documents will ensure continued access to your assets for you and your family and the provision of medical care in accordance with your wishes without the need for court proceedings to appoint a guardian or conservator.
Covering these basic questions should take you most of the way to creating a core estate plan. But if you have a larger estate (e.g., a net worth near or over the federal estate tax exemption of ($5.45 million in 2016), if you live in a state with state estate taxes, or if you have questions or need more information, make sure to consult with counsel or work with your estate planning advisor to address and minimize any potential estate tax exposure.
Step 2: CHECK BENEFICIARY DESIGNATIONS & ASSET OWNERSHIP
At your passing, assets with beneficiary designations, like IRAs and retirement accounts, deferred compensation plans, life insurance policies, etc., and assets held in trust or titled jointly with rights of survivorship (so-called “non-probate assets”) will be distributed directly to the named beneficiary or surviving owner, regardless of what your will says. For instance, property held jointly with your spouse with rights of survivorship will pass to your surviving spouse, even if your will directs the property to someone else. As non-probate assets may make up a large part of your net worth, carefully review the titling of your assets and your beneficiary designations to ensure they work with your desired estate distribution plan.
STEP #3: AVOID “DO-IT-YOURSELF” PLANNING
State probate and intestacy laws are complicated, and DIY plans can often wreak havoc on families, resulting in conflict and lost time and money in fixing errors. Consider working with an experienced attorney who will coordinate with your other financial and/or tax advisors to establish a solid and state-law compliant estate plan.
STEP #4: COLLECT INFORMATION BEFOREHAND
To save time and money, consider gathering the following information before meeting with your estate planning advisor so you will have it on hand for his or her review:
- Current Financial Statement. A list of all assets and liabilities, estimated values, and how owned (individual, jointly, etc.).
- Family Contact Information. Information on family members, estate beneficiaries, designated personal representatives, guardians, trustees and agents, including their names, relationships, dates of birth (for family and beneficiaries), and contact information.
- Tax Returns. Copies of income, gift or other recently-filed tax returns.
- Current Planning Documents. Copies of any existing wills, trusts, powers of attorney, etc.
- Beneficiary Designations. For all retirement accounts, life insurance policies, etc.
- List of Advisors. Contact information for current legal, accounting, and financial advisors.
STEP #5: KEEP THE PLAN ORGANIZED & ACCESSIBLE
Consider keeping copies of all your current estate planning documents, your financial information (bank, brokerage, and retirement accounts, life insurance policies, etc.), and contact information for your estate planning and other advisors in a safe, fire/weather proof location, but one that is accessible by those who will need this information, such as family members or your agents. Note that safe deposit boxes generally are not the best way to keep your documents safe, as you may be unable to provide the necessary consent to allow access when needed. You also could save the information in a secure electronic form to facilitate access and transmission to authorized persons. Finally, you may wish to provide copies of your powers of attorney and other authorization forms to the applicable parties (financial institutions, agents, doctors, etc.), so these documents are already on file in the event you become incapacitated.