Your Estate Planning Checklist: How To Create a Financially Sound Estate Plan
Like any other strategies for the future — college savings, insurance or retirement accounts — estate planning is a critical part of life planning. Estate plans are made up of many parts, including wills and trusts, as well as any additional documents or information that will help beneficiaries carry out the requests of the benefactor.
In case you need assistance down the road, make sure your needs are met by understanding the steps to plan your finances — and taking those steps while you’re healthy and of sound mind.
What Is an Estate Plan?
An estate plan is similar to a will but goes more in-depth. Passing away without an estate plan can drag your loved ones into a lengthy and expensive probate process to determine how assets should be distributed. Some of the most important parts of the estate plan are:
- A last will and testament
- Power of attorney in case you become incapacitated
- Medical directives
- A plan for how kids and dependents should be cared for
- Business succession
Estate Plan vs. Will: Who Needs An Estate Plan?
Most individuals should be fine with a simple will. But if you have a growing family or a larger estate including properties and investments, an estate plan is more comprehensive.
Who needs an estate plan? Anyone with complex or detailed requests and a higher net worth could benefit from one. According to the IRS, the 2021 estate tax exclusions for 2021 are $11.7 million, slightly up from 2020’s $11.58 million limits. Married couples could take the deceased spouse’s exclusion for a total of $23.4 million. An estate plan that includes a living trust could be a good tax strategy for individuals with estates worth more than the exclusion amount.
Estate Planning Checklist: 10 Steps
Setting up an effective estate plan means you’ll need to address several different points. The following estate planning checklist will help you kick-start building a solid estate plan.
1. Designate a Power of Attorney
A power of attorney allows you to name someone you trust to make financial and legal decisions for you if you are unable to do so yourself. For instance, if you want your spouse to have power of attorney, you can legally designate him to have decision-making ability.
Without a power of attorney, your spouse will have limited authority over the property you own together. If you don’t have a power of attorney, your family members will have to go to court to have someone appointed to manage your finances.
2. Appoint a Durable Power of Attorney for Healthcare
A durable power of attorney, or healthcare power of attorney, lets you name someone to make medical decisions and adjustments to your end-of-life care plan for you if you’re unable to make them yourself. Depending on the state you live in, there might be limitations on who you can designate as your healthcare agent. You might not be allowed to appoint your doctor, for example.
As you figure out your power of attorney and durable power of attorney, consider consulting an elder law attorney who can help you figure out details on how to fund a nursing home or what to do if you’ve outlived your retirement funds. Such an attorney can help you navigate elder law, which is specifically designed to address the needs of senior citizens.
3. Draft a Living Will
Your living will outlines the medical care you would want if you become unable to make your own healthcare decisions. For example, you can specify whether you would want to be kept alive on life support, and for how long.
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Even after you make a will, be sure to check with your state to find out if the living will and healthcare power of attorney are combined into a single advance healthcare directive document.
4. Write Out Your Will
Writing a will is your first step to ensuring that your wishes are carried out. In a will, you can specify who should receive your assets and who will be your children’s guardian. Be aware, though, that a will won’t direct where all your property and money goes.
For example, money in retirement and pension plans or proceeds from life insurance policies go to the beneficiaries you’ve named for those accounts. You also can’t use your will to leave any property you hold in joint tenancy or property you’ve transferred to a living trust.
5. Draft a Living Trust
The key benefit of a trust is that it allows you to transfer property to your heirs without the probate process, which can be lengthy, expensive and public. If you have just a will, any property that’s only in your name at your time of death will go through probate court to be distributed. But you transfer your assets to a living trust before your death, those assets can go directly to your family.
For a trust to be effective, you have to go through the process of transferring your assets to it, which can take a lot of time and paperwork. You’ll need to weigh the pros and cons to decide whether a trust is right for you.
6. Write Funeral or Memorial Instructions
You shouldn’t include your final funeral and burial wishes in your will because wills often aren’t opened and read until weeks after death. You need to specify in a separate document what sort of memorial service you want and whether you want to be buried or cremated.
Be sure that your friends and family are aware of your wishes, and give them copies of this document or tell them where to find it. Also, if you have a deed to a cemetery plot, make sure your family knows where it is.
7. Create a List of Accounts and Documents
Create a list of your financial accounts, insurance policies and the contact information for any professionals you work with, such as attorneys, accountants, brokers and financial planners. You also need to make copies of your estate planning documents, mortgage or deed to your house, and titles to cars and other property.
Keep your list and documents in a secure place — such as in a home safe or safety deposit box — and let family members and executors know where they can access your information if something happens to you.
8. Create a Care Plan for Your Pet
Choosing a beneficiary for your pet is an important decision and one you’ll want to discuss with the person you feel is the best fit. If you don’t want your pet to go to a no-kill shelter or facility, it’s a good idea to choose back-up beneficiaries in case the first choice is unable to take on the responsibility when the time comes.
If you’re confident that the person you choose will love and care for your pet as you do, then you might not need a detailed trust. However, if you want to have more control over the care of your pet and how the money you leave for that care is spent, then a detailed trust could be a smart move. A trust allows you to spell out your wishes, from what kind of food your pet gets to the type of healthcare it receives.
9. Sort Out Your Social Media Accounts and Digital Assets
In today’s digital world, you also have to figure out what will happen, after you’ve died, to your digital music library and social media profiles for websites like Facebook, Twitter and LinkedIn. The answer for what to do with your social media accounts and digital assets isn’t black and white.
Because of various laws, like the federal Computer Fraud and Abuse Act, it might be illegal to use your mom’s password, for example, to log into her email to retrieve bills or other important data.
10. Review the Plan Yearly
Creating a comprehensive estate plan is a major undertaking and one that most people are happy to finish. But an estate plan isn’t something you work on once and never look at again. As life circumstances and laws around estate taxes and other issues change, it’s important to review your plan at least once each year to ensure your plans will still work.
Cynthia Bowman contributed to the reporting for this article.
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- Fidelity. 2020. "Estate Planning: Do You Need One?"
- IRS. 2020. "Estate Tax."
- LegalZoom. "Taxes and the Advantages of Living Trusts."
- Mayo Clinic. "Living Wills and Advance Directives for Medical Decisions."
- U.S. Bank. "5 Potential Benefits of Setting Up A Trust."
- LegalZoom. "How Long Does Probate Take?"