Estate planning checklist

One of the most important aspects of financial planning is estate planning. Unfortunately, it is often left undone. When meeting with new clients, we frequently discover they have no estate plan or instructions in place for the disposition of their assets or guardianship of their minor children. That is why we created this estate planning checklist.

An effective estate plan not only ensures that your tangible assets, such as real estate and financial accounts, are distributed according to your wishes, but also addresses important matters like your health care decisions and digital assets. By having the essential estate planning documents in place, you can provide clarity and peace of mind for your loved ones, potentially reduce estate taxes and facilitate a smoother estate administration process.

1. CONSULT WITH YOUR FINANCIAL ADVISOR AND YOUR ESTATE PLANNING ATTORNEY

The financial advisor helps you develop a comprehensive financial plan that can cover things such as college funding, life insurance, retirement savings, estate planning and more. He or she can tell you what estate planning tools you might need to consider – such as a will, durable power of attorney, advance directive or revocable living trust – and then an attorney can help you decide on those documents and create them.

An experienced estate planning attorney can guide you through the estate planning process, helping you understand complex issues like beneficiary designations, asset protection strategies and potential inheritance tax implications. Together with your financial advisor, they can help you structure your retirement accounts, life insurance policies and other assets to optimize asset distribution and potentially minimize estate taxes.

It is important to work together because just having, for example, a signed living trust from your attorney may not be enough. You also need to title the assets, such as brokerage accounts, homes, cars, etc., into the trust.

Additionally, reviewing your beneficiary designations on accounts like your bank accounts, retirement accounts and insurance policies ensures that your named beneficiaries align with your overall estate plans.

2. AT A MINIMUM, CREATE A WILL

A will is an essential part of any estate plan. It is the primary legal document that allows your assets to be transferred upon death as you instructed. Your will outlines how your tangible assets, such as property and valuable possessions, should be distributed. It also allows you to name an executor who will manage the estate administration process, ensuring your wishes are carried out efficiently.

If you do not have a will, the state in which you live will determine how your assets are distributed. They call this “dying intestate,” which means you give up the opportunity to distribute your assets as you want; instead, the state decides for you. State laws vary, but your assets may not pass to your spouse and children the way you intend.

Without a thorough estate plan, including a will, your estate may be subject to higher estate taxes and inheritance taxes, potentially reducing the amount your beneficiaries receive.

If you already have a will, you should add reviewing and updating your will to your estate plan checklist. Regularly updating your will and other estate planning documents ensures they reflect any changes in your financial situation, such as acquiring new assets or changes in your family circumstances. These essential documents should be reviewed especially after major life events like marriage, divorce or the birth of a child.

3. NAME A GUARDIAN FOR MINOR CHILDREN

If you have young children, discuss with your spouse who will raise them and manage your assets for their care, benefit and welfare if something were to happen to you both. This helps ensure someone you trust will make those decisions.

Ironically, being unable to choose a guardian is one of the most common reasons parents of young children give for putting off writing a will. There are several factors to consider when choosing a guardian for your kids, but don’t let that intimidate you from making this important decision.

The law can require that you name a guardian for the money as a separate act from naming a guardian for the children. It is often recommended that the financial trustee or custodian be different from the guardian of the children. By having a third party control the assets, there is additional oversight that can help ensure the assets are used for the benefit and welfare of the children.

We recommend having an honest conversation with the intended guardian before you formalize the paperwork so that they agree to the responsibility in advance. Let this person know where they can find a copy of your current will and all trust/custodial documents when the time comes. Preparing your appointed guardian and trustee can help streamline the estate administration process if the need arises.

4. DURABLE POWER OF ATTORNEY

Being suddenly incapacitated is an example that no one likes to think about, but a sudden accident or chronic illness could prohibit your ability to perform basic financial tasks like paying your bills and filing taxes. Consider designating a third party to make all financial and non-health care decisions on your behalf in case you’re unable to do so on your own. This requires executing a durable power of attorney document and it involves careful thought. After all, you’re granting this third party, also known as an “attorney-in-fact,” a lot of power over your life, including all financial decisions. That said, you should know that your attorney-in-fact has a fiduciary duty to act in your best interests.

It stands to reason that your attorney-in-fact should be someone whose judgment you trust implicitly and who will not use the power of attorney until it is needed – perhaps your spouse, an adult child or a close friend.

Your attorney-in-fact would need to present the power of attorney document to financial institutions and others as proof of their decision-making authority.

5. MEDICAL DIRECTIVE AND HEALTH CARE POWER OF ATTORNEY

While most of the steps and documents we’ve discussed thus far address financial decisions, they won’t help with health care decisions. To prepare for those, you also need a medical directive and a health care power of attorney.

A medical directive states what type of health care you want to receive in the event you are in a vegetative state or have a terminal illness. If your condition is so severe that you can be kept alive only by artificial means, or if you need an operation but cannot make that decision because you are incapacitated, your medical directive specifies your wishes.

A health care power of attorney allows you to appoint a person of your choice – often called your health care agent – to make medical decisions on your behalf, honoring your preferences.

Without these essential documents, your loved ones may face difficult decisions with no guidance, which can add stress during an already challenging time.

6. CONSIDER A REVOCABLE LIVING TRUST

Without proper planning, your heirs may have to contend with probate court. And if you own real estate in more than one state, your heirs will have to deal with probate in each state. The process involves extensive time delays and legal fees. Fortunately, you can help avoid all this with a revocable living trust.

A revocable living trust is a legal document that allows you to transfer ownership of your assets into the trust during your lifetime. You maintain control and ownership over these assets, and upon your death, they are distributed to your beneficiaries without the need for probate, allowing for a smoother asset distribution. This can be particularly beneficial for complex estates or when aiming to maintain privacy.

Additionally, a revocable living trust can be updated as your circumstances change, providing flexibility in your estate plans. It can also assist in managing your assets if you become incapacitated, ensuring your financial decisions are handled according to your wishes.

7. TALK TO YOUR FAMILY

You’ll want to let your loved ones know where you keep your will, medical directive, power of attorney and trust documents. And make sure everyone knows whom you’ve named as your agents entrusted to make decisions for you.

Sharing the location of important documents like your estate planning documents and life insurance policies helps your family locate them when needed. Clear communication can prevent confusion during the estate administration process and help ensure that your wishes are followed.

If you’re not sure where to start on your estate planning checklist, speak with one of our financial advisors. He or she can help you understand what may be needed for your individual situation and portfolio of assets. We also recommend coupling that with a meeting with an estate planning attorney to create a comprehensive estate plan.

An experienced estate planning attorney can provide legal advice tailored to your unique circumstances, guiding you through the estate planning process and drafting essential documents. Collaborating closely with your financial advisor ensures that all aspects of your financial and estate planning are aligned, from managing your retirement accounts to setting up an revocable trust, if appropriate.

For personalized guidance, always consult with qualified professionals who can provide advice based on your specific financial situation, potential estate tax implications and any inheritance tax concerns.