Estate planning goes beyond drafting a will. Thorough planning means accounting for all of your assets and ensuring they transfer as smoothly as possible to the people or entities you wish to receive them. Along with implementing your plan, you must make sure others know about it and understand your wishes.
Itemize Your Inventory
To start things out, go through the inside and outside of your home, and make a list of all valuable items. Examples include the home itself, television sets, jewelry, collectibles, vehicles, art and antiques, computers or laptops, lawn equipment, and power tools. The list will probably be a good deal longer than you may have expected. As you go, you may want to add notes if someone comes to mind that you’d like to have the item after your death.
Follow With Non-Physical Assets
Next, start adding your non-tangible assets to your list, such as things you own on paper or other entitlements that are predicated on your death. Items listed here would include brokerage accounts, 401(k) plans, IRAs, bank accounts, life insurance policies, and other policies such as long-term care, homeowners, auto, disability, and health insurance. Include all account numbers and list the location of any physical documents you have in your possession. You may also want to list contact information for the firms holding these non-physical possessions.
Assemble a List of Debts
Then, make a separate list for open credit cards and other obligations you may have. This should include items such as auto loans, mortgages, home equity lines of credit (HELOCs), and any other debts you might owe. Again, add account numbers, the location of signed agreements, and the contact information of the companies holding the debt. Include all your credit cards, noting which ones you use regularly and which ones tend to sit in a drawer unused.
Make a Memberships List
If you belong to any organizations such as AARP, The American Legion, a veteran’s association, a professional accreditation association, or a college alumni group, make a list of them. In some cases, these organizations may have accidental life insurance benefits (at no cost) on their members, and your beneficiaries may be eligible to collect. Include any other charitable organizations that you support. It’s also a good idea to let your beneficiaries know which charitable organizations or causes are close to your heart and to which you might like donations to go in your memory.
Make Copies of Your Lists
When your lists are completed, you should date and sign them and make at least three copies. The original should be given to your estate administrator (more on that person later). The second copy should be given to your spouse (if you’re married) and placed in a safe deposit box. Keep the last copy for yourself in a safe place.
Review Your Retirement Accounts
Accounts and policies that have designated beneficiaries will pass directly to those people or entities upon your death. It does not matter how you direct that these accounts or policies be distributed in your will or trust. The beneficiary designations associated with the retirement account will take precedence. Contact your employer’s customer service team or plan administrator for a current listing of your beneficiary selection for each account. Review each of these accounts to make sure the beneficiaries are current and listed exactly as you like. This is especially important if you have divorced and remarried.
Update Your Insurance
As with retirement accounts, life insurance and annuities will pass directly to beneficiaries. It is important to contact all life insurance companies where you maintain policies to ensure that your beneficiaries are up-to-date and listed correctly.
Assign Transfer on Death Designations
Assets bequeathed in a will often go through probate, as do assets if someone dies intestate. This process, in which your assets are distributed per court instruction, can be costly and time-consuming. However, many accounts, such as bank savings, CD accounts, and individual brokerage accounts, are unnecessarily probated every day. If you hold these accounts, they can be set up or amended to have a transfer on death (TOD) designation, which lets beneficiaries receive assets without going through the probate process. Contact your custodian or bank to set this up on your accounts.
Select a Responsible Estate Administrator
Your estate administrator or executor will be in charge of administering your will when you die. It is important that you select an individual who is responsible and in a good mental state to make decisions. Don’t immediately assume that your spouse is the best choice. Think about how emotions related to your death will affect this person’s decision-making ability. If you foresee an issue, consider other qualified individuals.
Draft a Will
Everyone over age 18 should have a will. It is the rulebook for the distribution of your assets, and it could prevent havoc among your heirs. A will can also name a guardian for your minor children, and designate who should care for your pets. You can leave assets to charitable organizations through your will, too. Wills are relatively inexpensive estate-planning documents to compose; many attorneys can help you craft a will for less than $1,000, depending on the complexity of your assets and your geographic location. You can also write your own will with the assistance of online services or other software packages.
Make sure that you sign and date your will, in front of two non-related witnesses who should also sign the document, and have it notarized. Finally, make sure other people know the location of the document so they may access it when needed.
Regularly Review Your Documents
Review your will for updates at least once every two years and after any major life-changing events (marriage, divorce, the birth of a child, and so on). Life is constantly changing, and your assets and wishes are likely to change from year to year, too.
Copy the Administrator
Once your will is finalized, signed, witnessed, and notarized, you will want to make sure that your estate administrator gets a copy. If the original is not being kept in your home (for example, it’s at your attorney’s office), you should also keep a copy in a safe place at home. Bear in mind that while you can make copies, only the original will—the “wet signature” document, in estate-planning lingo—can be filed for probate.9
Visit an Estate Attorney and/or a Financial Planner
While you may think that you’ve covered all your bases, it may be a good idea to consult with a professional on a full investment and insurance plan. And if it’s been a while, you may want to revisit your plan. As you get older, your needs may change, such as figuring out if you need long-term care insurance and protecting your estate from a large tax bill or lengthy court processes. Professionals will also be up on changes in legislation and income or estate tax laws, which could impact your bequests.
Simplify Your Finances
If you’ve changed jobs over the years, it’s quite likely that you have several different 401(k) retirement plans still open with past employers or maybe even several different IRA accounts. You may want to consider consolidating these accounts into one individual IRA. Consolidating of accounts allows for better investment choices, lower costs, a larger selection of investments, less paperwork, and easier management.
Complete Other Important Documents
At a minimum, you should create a will, power of attorney, healthcare proxy, and living will. Your will should also assign guardianship for your minor children as well as any pets. Consider setting up both financial and medical powers of attorney so that people you trust will be there handling your affairs should something happen to you.
You can also write a letter of instruction to leave step-by-step instructions as well as spell out your personal wishes for things like your funeral or what to do with your digital assets like social media accounts. If you’re married, each spouse should create a separate will, with plans for the surviving spouse. Finally, make sure that all the concerned individuals have copies of these documents.
Take Advantage of College Funding Accounts
You may want to set up 529 college savings plans for your grandchildren. In these plans, savings grow tax-free, and many states offer tax deductions for the person contributing the funds.
Gather Important Documents and Contact Information.
Property deeds, vehicle titles, official certificates (birth, marriage, etc.), the contact information for your attorney, insurance broker, doctor—all of these are things you can gather and put in the same, safe place now to make it easier for your loved ones later. As a bonus, getting all these materials together should also make compiling your estate plan easier, as you will have a lot of the necessary information at your fingertips.
Execute a Last Will and Testament.
A will is one of the most important estate planning documents you can have, as it details where you would like your property to go after your death.
A living will or advance directive is a legal document in which you name someone to communicate with medical personnel regarding your treatment preferences should you become incapacitated or otherwise unable to express your preferences yourself. Issues addressed in living wills generally include breathing tubes, feeding tubes, and other life-sustaining medical treatments.
Put in Place a Power of Attorney.
A durable power of attorney allows you to name someone to be in charge of making decisions for you if you become incapacitated. You may choose to name a separate health care power of attorney for medical decisions and financial power of attorney for financial decisions.
A health care power of attorney works hand-in-hand with a living will to ensure that your wishes regarding medical treatment are followed. A Health Insurance Portability and Accountability Act (HIPAA) authorization is also necessary to allow others to speak with doctors and nurses about your condition.
Establish a Living Trust.
A living trust can be a great way for you to make sure your wishes are followed after your death, as well as providing for fast distribution of your assets to beneficiaries, avoiding estate taxes and keeping your financial affairs private. With a living trust, you (as the grantor) retain control over any property placed within the trust throughout your lifetime. Upon your death, your pre-chosen successor trustee gains control of the trust and will then distribute your assets according to your instructions—all bypassing probate, thus saving both time and money. An irrevocable trust can also serve as asset protection, to protect your property from being touched by creditors or lawsuits.
Update Your Beneficiaries.
If you have life insurance, retirement accounts, pensions, or pay-on-death (POD) or transfer-on-death accounts, make sure your beneficiaries are up to date, as these accounts transfer according to their beneficiary designations; your last will does not control them. Any time your family situation changes is a good time to review your beneficiaries.
Secure Your Digital Assets.
Along with online bank, investment, and shopping accounts, many people also have social media accounts that need handling upon the death of the owner. Facebook, for instance, has a special section in which you can select someone to take over your account upon your passing, but you should also think about what you want to happen with websites, blogs, and any other online activities in which you participate.
Plan Final Arrangements.
Final arrangements can include organ donation, as well as funeral plans, including how they are to be paid for. Pay-on-death bank accounts are often the best way to handle funeral expenses. Your will isn’t the best place to include this information because it often isn’t read immediately, so a letter to your estate administrator or a trusted loved one is best.
Make Copies and Store Your Documents.
Once you have gathered all your estate planning documents, make copies and store the original and copies in a safe place, such as a fireproof safe in your home or a safe deposit box. Make sure at least one other person will be able to access these documents after your death.
Talk With Your Loved Ones.
Just getting everything down on paper is a great step forward in estate planning, but talking with your loved ones about your wishes is priceless. The clearer they are on what you want, the more likely it is that your wishes will be followed and the fewer problems they will have, as they won’t have to guess your intentions. This talk doesn’t have to be all grim and dire, however. You can also take this opportunity to talk to them about your life and memories, and even pass along cherished photographs and stories.
Keep Everything Current.
Once you put together your estate plan, don’t just put it in that safe place and forget about it. At least yearly, perhaps on your birthday, you should revisit the documents to make sure they still reflect your intentions.