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Estate Planning Checklist
Estate plans, like Rome, are not built in a day. It takes time to map out how you want your estate distributed after death – and decide who will be in charge of your finances and health care in case of incapacity.
An Updated Last Will and Testament
Regardless of the value of your estate, a last will legally distributes assets after death according to your wishes. Your last will should be reviewed every two to three years to reflect changes in your life and changes in the law. Your last will should also be updated when there is a death, divorce, marriage, birth, relocation, or other significant event.
A revocable living trust is a popular alternative to a last will. If properly prepared and “funded” with your assets, your living trust can avoid probate, unlike a last will.
Review Named Beneficiaries
Any asset with a named beneficiary is distributed outside of your probate estate. For example, perhaps you started a retirement plan (e.g., whether employer-sponsored or your own individual IRA) years ago. Have you forgotten who you designated as the beneficiary at your death? Whoever is designated will inherit the asset. This could be someone who is no longer part of your life, like an ex-spouse. If the designated beneficiary is now deceased, then the retirement plan will become part of your probate estate. It is a prudent practice to regularly review your beneficiary designations for retirement plans and life insurance. Make sure that you also have both primary and contingent beneficiaries.
Create an Inventory of Assets
An inventory of all assets is necessary every few years, or when there is a sizable change in the value of the estate. The inventory should include account names and numbers, contact information if the asset was purchased through a financial advisor or broker, the original “basis” of the asset when acquired, and the asset value at the time of the inventory. This information, and other private information, should not be included in your last will. It becomes a public document when filed with the probate court after death.
Planning for Incapacity
A general durable power of attorney (POA) appoints someone you know and trust to be in charge of your financial life, if you are ever incapacitated. This person, known as an agent or an attorney in fact, can then legally perform tasks as simple as paying household bills or as complex as selling your home or business. Ask any candidates you are considering whether they are willing and able to serve, before committing them to the POA. While you are at it, always name a secondary agent, in case the first predeceases you or cannot serve.
As with the POA, a medical or healthcare power of attorney is used to appoint your health care agent in the event of incapacity. Your healthcare agent can make your medical decisions, talk with doctors and other healthcare providers, and be involved in your ongoing care. The agent will also talk with your loved ones during critical times. This is ideally someone who can stay clear-headed during emotionally-charged situations.
End of Life Planning
A living will or healthcare treatment directive guides your healthcare agent and loved ones when it comes to your wishes in the event of a terminal illness or injury when you have little chance of recovery. It clearly states your wishes about being kept alive through artificial means, whether to exhaust all options or to allow you to die.
This document can be difficult to contemplate and should be given careful thought. Not only should it be discussed with your physician, but also with your loved ones. Having these difficult discussions will take the burden from your agent and loved ones, who otherwise would be left to guess about your wishes. In the absence of such planning, too many families end up fighting for control over such decisions in court.
Estate Taxes and Inheritance Taxes
Given the current high federal estate tax exemption of $12.6 million per person, few American households need to be concerned with federal estate taxes for the next year or so. However, there are states with their own estate taxes with much lower exemption limits. Some states have inheritance taxes, which are levied on heirs based upon their relationship to the deceased. Other states have both their own estate taxes and inheritance taxes! Consequently, estate tax planning is part of every comprehensive estate plan.
Summary
This brief “checklist” is a good starting point for creating and maintaining your estate plan. As you can see, proper estate planning is not a “set it and forget it” experience. Like your home or automobile, your estate plan requires ongoing maintenance to perform as intended when needed.
