The most important items in estate planning!
Estate Planning Must Haves
This Estate Planning Guide article covers the the most important, must haves in estate planning. It will provide you with an overview of what you will want to keep in mind as you begin your estate planning journey or try to tighten up what you already have in place. There are a great many benefits of having a comprehensive plan for your estate developed . Some of the benefits include:
- The minimization of taxes, court costs, and legal fees
- The naming of an executor to handle the affairs of your estate
- Instructions for your care and financial affairs, should you become incapacitated before death
- Avoiding the need for probate
- The ability to keep your estate matters private as opposed to publicly assessable
- The naming of a guardian for the care of any non-adult children or children with special needs
- An of course, specifying how and to whom you would like your assets will be distributed
So where do you begin and what are the most important items to consider when creating an estate plan?
Inventory of your estate
Always begin with the fundamentals! In estate planning, one of the primary fundamentals is having a complete list of what assets you own. You will want to make a complete inventory of all of your assets. Begin by creating a list to document your personal effects, insurance policies, stocks, bonds, bank accounts, automobiles, real estate and business interests. You can find a sample of an estate planning inventory spreadsheet in the tools section of our website located here. Make you listing of assets as complete as possible. Doing so will be both helpful for you and whomever you will designate as the executor of your estate. For personal effects such as jewelry, furniture, heirlooms, collections…. we suggest including an item description, item location, estimated item value, and the name of the beneficiary(s) that you would like to transfer to item to at the time of your passing. When creating an inventory of items such as bank accounts, bonds, stocks, retirement funds, insurance policies… We suggest documenting the financial institutions name, address, representative you work with (if any), phone number, account number, policy number, account type, balance and in what portions you would like to have these assets distributed to your beneficiaries. You may want to add notes for any items that could benefit from additional clarification. For motor vehicles such as cars, boats, and or real estate such as your primary residence, a second home, land; we recommend documenting the address, how title is held, the purchase price, the estimate current value and how you would like the assets to be distributed to your beneficiaries. You may also want to consider including information about your property tax assessment as well. In states such as California, you may be able to transfer a low property tax assessment to the child or children who you are leaving the home to.
Create a list of your liabilities
When a person passes, any debts they had when they were living will need to be paid or settled. Without a living trust, an estate will likely enter probate. During the probate process debts and liabilities will need to be settled. If you have a trust and your estate is able to avoid probate, the executor of the trust / estate will still need to pay-off your debt or settle with creditors. If you create an organized and complete list of your existing liabilities, it will make the process far easier for whomever is handling the debt settlement aspects of your estate.
Much like with the estate inventory assets list you created, you should be as detailed as possible with your estate liabilities. You will want to list items such as credit cards, personal loans, auto loans, judgements and real estate mortgages. On your list you will want to include information such as the creditor name, contact person (if any), phone number, address, account number and the amount of outstanding debt. Any supporting documentation for the debt, such as a mortgage note or contract should also be included / kept with your list of liabilities. You may also want to include information for your home utilities, to simplify the maintenance of your home during the probate / distribution process.
Seek professional assistance with your estate planning
Depending on your family situation, the amount / type of assets you own and your directives for finances and health care, estate planning can get pretty complicated at times. Making a significant mistake can be costly. At this phase of the estate planning process, it likely will make sense to seek the assistance of an estate planning professional such as an estate planning attorney.
In the United States, each individual state decides how it handles its own estate and probate matters. For this reason it makes sense to find an estate planning lawyer familiar with the laws of the state you reside in. A good estate planning professional will be able to give you guidance and advice on all aspects of your estate planning needs. Some examples may be if a last will and testament or a living trust makes more sense for your situation. Should you have powers of attorney drafted? How long does the probate process typically take in your county? An estate planning attorney will be able to answer all of these questions as well as draft legal documents for you.
Determine if a will or trust is best for you
You are going to want to determine if it makes more sense for you to utilize a last will and testament or perhaps a more elaborate estate planning tool such as a revocable living trust. A will or last will and testament, is a legal document that provides instructions for what should happen to a person’s assets after his or her death. The term “last will and testament” is commonly used to mean the same thing as a “will”, but to be exact, a last will and testament refers to the most recent version of a will. A will is commonly used to distribute a personal property, real estate and investments. It may also be used to appoint legal guardians for minors or people with special needs. If a person dies without a will, they are said to be intestate, and state intestacy laws govern the distribution of the property of the decedent. A revocable living trust is a legal arrangement that allows a person’s assets to be held and managed by a third party. This third party is known as a Trustee. The Trustee is the person or group of people that are responsible for ensuring that the estate is handled in the manner specified in the trust documents. There are several purposes for an estate planning living trust, but one of the more common reasons people choose to use a living trust is to make sure their assets are distributed how they wish and to avoid the need for probate.
Deciding on a trust or will for your estate planning needs often boils down to a few things. With a trust, the information about your estate stays private and confidential. When a will is used, information about your estate is made public during the probate process. Another factor is cost. A living trust is typically more expensive to setup and maintain over time than a will. A will can be created very inexpensively and even potentially at no cost. You can find samples of wills online with the help of online resources (just make sure the will meets the minimum requirements of your state to be deemed valid in court). Lastly, depending on the state you reside in, if you have very few assets, a will may be sufficient to avoid the probate process. A capable estate planning lawyer can help you decide what the best option for your situation is.
Establish your directives and power of attorney documents
A comprehensive estate plan accounts for more than just how your assets will be distributed. Advance health care directives are legal documents that provide guidance to your family, and medical providers regarding your health care when you are incapable of communicating this information yourself. For instance, if you are physically or mentally incapacitated, an advanced health care directive can specify your wishes regarding the medical care you would or would not want to receive in different situations. An advance healthcare directive may also communicate additional medical preferences such as if you wish to be an organ donor or wish to donate your body to medical science. Commonly, a medical power of attorney or health care agent form is used in conjunction with an advance health care directive. A medical power of attorney is a legal document that allows you to appoint a person to make healthcare / medical decisions on your behalf in the event that you are unable to make them for yourself.
In addition to having a person to make difficult medical decision on your behalf, you should also consider having someone to make financial decisions on your behalf as well. In estate planning, you can utilize a power of attorney to authorize a person of your choosing to handle financial matters on your behalf if you become incapacitated. A power of attorney has some flexibility. For instance, you can design a power of attorney to become active only in the situation that you are incapacitated. You may also choose to create a power of attorney that goes into effective immediately if you are in the early stages of a degenerative disease. A power of attorney only applies to the specific powers you authorize in the document and it is only valid during your lifetime. The rules governing directives and power or attorney documents change from state to state. We encourage you to have a conversation with an estate planning expert that is familiar with the laws of your state to determine what the best options for your personal situation are.
Designate a reliable estate executor, trustee or administrator
The naming of an estate executor is one of the most important purposes of a will. The executor is the one to carry out the final wishes of the decedent as specified in the will. For this reason, it is important to choose someone whom you trust and is competent to handle such an important and potentially difficult task. The executor of an estate must be at least 18 years old and mentally sound enough that the court will be comfortable letting them handle the estate affairs. A court can remove an executor for committing fraud, embezzlement or for the misadministration of as estate. For this reason, it is suggested that you choose someone who is honest, trustworthy and if possible respected by the beneficiaries named in your will or trust. We recommend that before selecting your estate executor, you speak with them. Make sure that they are willing to serve as your executor and that they understand how you would like the different aspects of your estate carried out.
List your beneficiaries
Selecting the family members or loved ones who will receive your property upon your passing is one of the most personal and important acts carried out by a will or trust. To do so, you will need to designate your beneficiaries and specify what property they will receive in your will or trust. A beneficiary is a person who will receive the benefit of personal or real property from a trust or estate on behalf of a benefactor (decedent) or settlor (the person who created the trust). For example, the beneficiary of a life insurance policy is the person who receives the payment of the amount of insurance after the death of the insured. If you are drafting your own will, you should be as detailed as possible when naming your beneficiaries. Do your best to provide a person’s full legal name, date of birth (if available), address, phone number and their relationship to you (brother, spouse, child, friend…). The more complete your information is, the more likely your property is to be distributed as you desire and the easier the task will be for your estate executor or administrator.
If a charity is important to you, you can also designate that charity as a beneficiary in your will or trust. What can you donate to a charity in your will? Most commonly money is left to a charitable organization since it makes it easier for the charity to accept the donation, but many will accept other forms of donation such as stocks, bonds, real estate or even a vehicle. Once again, be as thorough as possible when it comes to detailing the information about the charitable beneficiary. Try to list their full name, street address, phone number and Employer Identification Number (if available).
Keep your estate planning documents in a safe place
Even the best drafted will is useless if it is lost or destroyed. For this reason, once you have completed the creation of your will and estate planning documents, you should protect them and share copies with important individuals. The original, non-copy version of the will that contains the pen signed signature (sometimes called the wet signature) is the most important. The “original” is the version of the will that is validated during probate. If the original is not being maintained at your attorney’s office, you should consider keeping it in a safe place at home. If you choose to keep it in a fireproof safe, you will want to make sure that your estate executor and / or spouse have the ability to gain access to the safe and are aware of where it is being kept. You will want to provide a copy of the will and estate planning documents to your designated estate executor so that this copy can be verified and to serve as a backup in case the original is destroyed.
Review and update your estate plan annually
The world in constantly changing and the information in your estate planning documents can quickly become outdated. We recommend reviewing your estate planning information each year and making modifications to it when needed. In addition to regular reviews, it’s a good idea to update your plan when significant changes or life events occur. Here are some examples:
- Marriage, divorce or the passing of a spouse
- Purchasing a home or other significant asset
- Paying off a mortgage or significant debt
- The birth or adoption of a child
- When a grandchild is born or new potential beneficiary enters your life
- When a child becomes an adult
- Death or change in circumstances of the guardian named in your will
- Borrowing a large amount of money or taking on a significant liability
- Significant changes in the value of an asset
- The death or change of your executor, trustee or successor trustee
Keep in mind that the more up-to-date your estate planning documents are kept, the easier it will be for your estate to be administered. We hope that you found our estate planning guide useful. As we have mentioned, we highly recommend that you seek the assistance of an estate planning professional in your area to help you create or review your estate planning documents. We have also included a list of some online resources that you may find helpful in developing your estate plan and an estate planning glossary in case you need clarification on any terms.