12 Steps to an Estate Plan
You may have heard that you need to make an “estate plan,” but what does an estate plan cover, and how do you make one?
Here is a simple list of the most important estate planning issues to consider.
Make a will
In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.
Consider a trust
If you hold your property in a living trust, your survivors won’t have to go through probate court, a time-consuming and expensive process.
Make health care directives
Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration (“living will”) and a power of attorney for health care, which gives someone you choose the power to make decisions if you can’t. (In some states, these documents are combined into one, called an advance health care directive.)
Make a financial power of attorney
With a durable power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn’t have to be an attorney).
Protect your children’s property
You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.
File beneficiary forms
Naming a beneficiary for bank accounts and retirement plans makes the account automatically “payable on death” to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.
Consider life insurance
If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.
Understand estate taxes
Most estates — more than 99.7% — won’t owe federal estate taxes. For deaths in 2017, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.49 million. (This exemption amount rises each year to adjust for inflation.) Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity are exempt from the tax.
Cover funeral expenses
Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.
Make final arrangements
Make your end-of-life wishes known regarding organ and body donation and disposition of your body — burial or cremation.
Protect your business
If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.
Store your documents
Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:
real estate deeds
certificates for stocks, bonds, annuities
information on bank accounts, mutual funds, and safe deposit boxes
information on retirement plans, 401(k) accounts, or IRAs
information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
information on funeral prepayment plans
any final arrangements instructions you have made.
Keeping your documents organized will be a great help to your survivors.