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7 Estate Planning Essentials

One of the biggest problems in estate planning is that people find the subject to be uncomfortable and keep putting off the preparation of documents they may need. Unsurprisingly, the most common mistakes are usually avoidable with a bit of planning. Virtually every financial advisor will be quick to say a good financial plan includes planning for one’s estate distribution after they pass. And the fundamentals aren’t hard to grasp. Here are some important issues to consider in planning your estate.

1. Write your will--it may be easier than you think

Many people assume that a will is difficult or expensive to prepare. But a simple will that meets your state’s requirements for legitimacy is usually not very expensive. The more complex your plans, the more costly the will is likely to be. But your will creates specific legal rights that can affect property with value far beyond the legal fees for writing up your wishes. And without one, a probate court’s distribution of your property has to follow your state’s statute that describes who receives your property, whether or not that aligns with your plans.

2. Name contingent beneficiaries in case your chosen recipient pre-deceases you

Don’t assume the first party designated as a beneficiary will be around by the time your estate plan takes effect. Name a second (or even a third) beneficiary (or group of beneficiaries) as a contingency. This will reduce the chance that your heirs would fight over what you would have wanted if you’d considered the possibility that your primary beneficiary would no longer be around.

3. Get professional help

Yes, there are websites where you can download a form to use as a will. And they’re legal in all 50 states—except when they’re not. Your will is a binding legal document and is no place to improvise or take chances. This is a professional realm where mistakes are costly and easy to make, so pay a professional to do it right. And get their advice whenever you deal with big changes like children joining the family or inheriting assets from someone else.

4. Update your estate plan regularly

After you create your estate plan, life will go on. And usually, things will change: new children arrive, older relatives pass on, the family home gets sold, property from others is inherited. Whenever you experience a significant life event, there’s a chance it affects your estate plan. Have your lawyer review your documents in light of your new circumstances so you can get the guidance you need about anything that might need to be changed.

5. Don't get hung up on taxes

For many years, estate taxes were seen as a disaster waiting to happen. But no longer, at least for most of us. Unless your estate is well in excess of $11 million (under current law), you won’t be subject to federal estate tax. (State taxes that take effect on death or inheritance vary significantly from state to state.) It’s common still to see complicated trusts that were set up at a time when estate taxes had a much lower threshold, only to create extra hassle and expense for beneficiaries today. Ask your lawyer or financial planner whether you’ll be subject to estate tax, or whether you can manage with a simpler and much less expensive estate plan.

6. Understand what your will doesn't do

Any financial asset with a valid beneficiary designation won’t be affected by your will (unless your estate is listed as the beneficiary). Your life insurance, IRAs, 401(k)s or similar retirement accounts, pensions, and more typically give you a chance to name beneficiaries. Even your house, bank accounts, and cars might be set up to go to another person at your death without involving your will. Changes to your will won’t affect these beneficiary designations, which you can use as an inexpensive way to avoid probate. Again, professional help can save you from costly unintended consequences.

7. Remember that your estate plan is more than just your will

Your will designates what happens to your property at your passing, names your executor(s), and might even say who looks after your minor children until they’re grown. But it does nothing at all while you’re alive. Consider a Durable Power of Attorney naming someone to manage your finances if you’re still alive but unable to see to them yourself. And everyone should have written advance directives for health care clearly stating who can make medical decisions for you if you can’t, and what you would want to have happen if you are in a terminal or permanently unconscious condition. Some financial advisors even offer an advance directive so they know who to turn to if cognitive decline means you should need help managing your finances for your best interest.

Estate planning isn’t a lot of fun to think about. But having your documents in place can go a long way to reducing the worry you may have about having your wishes carried out if you can’t speak for yourself.

  1. https://www.irs.gov/businesses/small-businesses-self-employed/deceased-taxpayers-probate-filing-estate-and-individual-returns-paying-taxes-due
  2. https://www.nolo.com/legal-encyclopedia/estate-tax-will-estate-have-29802.html
  3. http://estate.findlaw.com/planning-an-estate/estate-and-gift-tax-an-overview.html
This content is developed from sources believed to be providing accurate information, and provided in part by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.