Uncertainty and turmoil surrounded many aspects of estate planning for years, causing many people to put their planning on hold.
There is no reason now to delay action. We are in a period of relative stability.
Whatever the state of your plan, it is easier to create or update it using this checklist of the essential steps for every plan.
Review the beneficiary designations. A will and living trust are the main tools for transferring an estate, but they do not control all assets.
Assets that fall outside the scope of wills and living trusts include IRAs, 401(k)s, pensions, annuities, life insurance, transfer on death accounts, and health savings accounts.
These assets are inherited by beneficiaries named in the contract, account application, beneficiary designation form, or other documents.
Fail to designate a qualified beneficiary, and the law or policies of the account custodian will determine the beneficiaries.
This step often is overlooked, though it can be taken without involving an attorney.
I regularly read court cases in which the wrong person inherited valuable assets because the owner did not change a designation that was made years earlier.
Assets often are inherited by ex-spouses, estranged children, the estates of long-deceased parents, or others. Sometimes intended beneficiaries are excluded, such as later-born children, grandchildren or others.
Reviewing and updating beneficiary designations is the easiest part of estate planning, but perhaps the most neglected.
Document what you own and owe. Before visiting an estate planner, compile a current list of what you own and any debts you owe.
People who do this exercise often rediscover accounts, assets or other property.
The personal inventory helps plan the estate and is needed by your estate executor, successor trustee to your living trust, and others who eventually will manage the estate.
The inventory should provide details such as account numbers, property locations, legal titles, other documents and how to access assets. Details about liabilities also are essential.
Complete the essential documents and keep them updated. The most important estate planning documents are those that might be used during your lifetime. Have these prepared or updated right away.
A durable power of attorney designates one or more people to manage your assets when you cannot. After preparing the form, contact your financial services providers to be sure they will recognize the authority of the agents named in the document.
Another essential document is the advance medical directive in which you appoint one or more people to make medical decisions when you are not able. It is known by other names such as medical power of attorney or living will.
Be sure your medical providers have copies. Many states have online registries where these documents can be posted so medical providers can access them easily.
The IRS requires its own power of attorney, Form 2848, which is available free on its web site. The IRS does not recognize other power of attorney documents.
Social Security also requires you to complete Form SSA-4547 to designate a representative payee to manage your benefits when you are not able.
Set the probate strategy. A decision to make early in the estate planning process is the extent to which your assets should avoid probate.
Probate is the legal process in which a will is submitted to a court and the estate is administered. It ensures debts are paid and title to assets is passed to new owners according to the terms of the will and state law.
Probate can take many months or longer. Assets cannot be distributed until the court approves. Probate also might increase costs and take a lot of the executor’s time.
The advantages of probate are that it verifies legal title to the assets and reduces the potential someone will distribute the assets in a way you did not intend.
The primary way to avoid probate is to have most assets owned by a revocable living trust. Assets owned by a living trust avoid probate and are distributed to beneficiaries according to the terms of the trust. Assets that are not controlled by a will or living trust, as mentioned earlier, also avoid probate.
Discuss the local probate process with your estate planner to determine how important avoiding probate is to you and how to structure asset ownership to avoid it.
Anticipate beneficiary conflicts and reduce them. Conflicts among surviving family members or other beneficiaries are a frequent reason estate plans fail.
Try to anticipate potential conflicts. For example, don’t create an estate plan that forces adult children or others to agree or work together if they have trouble doing that now.
Consider not naming an adult child as sole executor when one or more of the other children resent that sibling having greater responsibility or say than the others.
Be alert for the potential of an individual’s roles to create conflicts.
A classic conflict is when a surviving spouse is trustee of a trust that will pay him or her income for life and distribute the remaining trust property to the children after the surviving spouse dies. The children might believe the surviving spouse is investing for maximum current income at the expense of earning capital gains for their future.
Choose executors and trustees with care. A plan’s success or failure often is determined by the people who execute it.
Take care when naming executors and trustees. People selected should be both willing and capable of performing the duties. They must have the time to do the jobs correctly.
Sometimes a disqualifying factor should be that the person lives too far away from you, because the estate will have to be probated in the state where you reside.
Consider appointing co-trustee and co-executors instead of only one person.
Also, determine when it would be better to name a professional instead of a family member or friend. Or split duties between professionals and nonprofessionals.
A good estate planner will guide you through the pros and cons of the different options and help determine the best choice based on the details of your estate and plan.
Have a digital asset plan and inventory. Many people now have significant digital assets and accounts. It is critical to know how planning for these assets differs from planning for other assets. It also is important to leave a comprehensive list of the digital assets that includes details of how to access them.
Don’t forget the personal side. A good estate plan isn’t solely about assets and money.
You’re likely to have some items that are personal and sentimental to you and to other people. Give careful thought to how these should be distributed among your loved ones.
Also, consider leaving a non-financial legacy. Some people want to leave a few reflections or philosophical thoughts, expressions of love for survivors, personal instructions, family history, or other information.
These can be done in a written statement, often known as an ethical will or family love letter, among other titles. Or you might want to use technology to leave an audio or video record.
Follow through. Many people realized during the pandemic that they hadn’t paid attention to their estate plans for years, and the plans were badly out of date. A plan should be reviewed and reconsidered at least every few years and certainly after a life-changing event in your family.
