Estate Planning Checklist: 6 Key Steps To Take

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Updated on Monday, September 28, 2020

Estate planning — the process of making a plan for your assets after your death — includes many components, encompassing everything from trusts and wills to life insurance. This article will provide you with a six-step checklist to help you streamline the process of estate planning, ensuring all key aspects are covered.

What is estate planning?

Estate planning is when an individual or family makes plans for the transfer of their assets after their death. Those assets can be transferred through vehicles such as wills and trusts. Wealth that is often considered in estate planning includes the person’s total property, such as real estate, cars, household items and bank accounts.

The purpose of estate planning is to maximize what you’re leaving behind to your beneficiaries or heirs, which often includes minimizing taxes.

Estate planning checklist: What you need to do

1. Take inventory

The first step to crafting an estate plan is to take inventory of all of your assets, debts and other details about your estate. When you take inventory, you should try to include details like the account numbers, intended beneficiaries and the asset’s value.

Be sure to include the following in your inventory:

  • Your background information (such as your marital status) and information on the children you have (if any)
  • Family and other beneficiary information (like Social Security numbers)
  • Bank accounts
  • Brokerage accounts
  • Securities information (such as stocks and bonds)
  • Individual retirement accounts
  • Employer-sponsored retirement plans
  • Insurance
  • Real estate
  • Safe deposit boxes
  • Personal property (like cars and collectibles)
  • Unsecured debts
  • Debts owed to you
  • Business interests

2. Establish your will or trust

An important part of estate planning is writing your will — a legal document that outlines the distribution of your assets after your death. If you don’t have a will, you risk the state deciding how to distribute the assets you leave behind.

Key components of a will include:

  • Who will receive other assets that do not allow for assigned beneficiaries (such as real estate)
  • Information on how those beneficiaries will receive your assets
  • Guardians for minor children

The person who you designate to carry out the wishes outlined in your will is called the “executor.” The legal process of transferring your assets to your heirs is called “probate,” and it can be a lengthy process with various expenses like lawyer fees and court fees.

Inherited assets that are often subject to probate include real estate, cash and retirement accounts that do not have designated beneficiaries and personal property. Probate also consists of the paying of any outstanding debts that you may have left behind to creditors. Only after debts and taxes are paid can the assets be distributed to the heirs you outline in your will.

Another document you can consider adding to your estate plan is a trust, which is a legal contract through which you appoint a trustee to manage your assets through life and after death. Similar to a will, you provide instructions on how you want your estate (such as real estate, stocks and bonds) to be handled after your death.

Your trustee will have legal title to the assets included in your trust. The trustee is also in charge of making sure those assets are distributed to your beneficiaries, based on the specific instructions you provide. Some people opt for a trust over a will, as it allows them to avoid probate.

3. Designate your beneficiaries

Be sure to designate your beneficiaries on accounts that allow for them. A beneficiary is the person or entity who will receive ownership of that asset. You typically assign a beneficiary upon opening an account or signing up for an insurance policy, and will be asked to provide the name and personal information (like a Social Security number) of the beneficiary.

Beneficiary designation is often available for assets including:

  • Retirement accounts (like IRAs and 401(k) plans)
  • Life insurance policies
  • Annuities
  • Payable on Death bank accounts
  • Transfer on Death investment accounts
  • Property that has joint tenancy with rights of survivorship

With designated beneficiaries, assets are directly transferred without having to consult the written will or go through probate. By skipping the process of probate, your heir will be able to save time and money.

While you should include your beneficiaries in your will, certain financial products — like retirement plans and insurance policies — require you to assign a beneficiary on that particular account. This is important to keep up to date, because in the case that an asset in the will is named to someone different from the account’s beneficiary, the asset will go to the account’s beneficiary, as it has greater authority than the will.

While you’re reviewing and designating your beneficiaries, consider adding a contingent beneficiary — which acts as a backup beneficiary if your primary beneficiary cannot receive the benefit.

4. Consider life insurance

Another component of estate planning to consider is life insurance. When you take out a life insurance policy, you will pay a premium over the term of that policy. In the case of your death, those proceeds will then go to whoever you designate as the life insurance’s beneficiary.

There are a variety of life insurance policies — term and permanent are popular choices — which can be purchased through a broker, insurance company or through your employer.

While life insurance isn’t necessarily as mandatory as a will or trust, it is a useful tool that you should consider incorporating into your estate plan, especially if you have dependents but don’t have enough assets built up to care for them if you unexpectedly pass. Explore the life insurance policies available to you and whether they have a spot in your estate plan.

5. Establish your directives

Your estate plan should include a number of directives (in addition to your will or trust) in which you hash out how you want certain aspects of your estate handled — and by whom. When crafting your estate plan, be sure to include the following directives:

  • Advance health care directive: With this directive, you will designate a healthcare proxy to make decisions for you if you’re unable to do so yourself, as well as outline specific medical instructions if you become unable to make those decisions yourself (this is also called a living will).
  • Durable power-of-attorney for finances: This directive will allow you to designate someone to make financial decisions — like handle bill payments and pay for medical expenses — on your behalf if you’re unable to do so.

6. Plan for estate taxes

Since one of the desired outcomes of a good estate plan is to minimize estate taxes that are passed down to your heirs, planning is key. Keep in mind your estate could be subject to federal and state inheritance or estate taxes. As part of your estate planning, you’ll want to research which taxes your estate may be eligible for, and begin strategizing how to minimize them.

For example, strategies that are often used to minimize estate taxes that take advance planning include:

  • Reducing the value of your estate by making annual gifts to your children (under a certain dollar amount) or making charitable donations
  • Placing your assets in a trust
  • Buying extra life insurance policies in advance that will cover the cost of hefty estate taxes

Benefits of estate plans

Creating a solid estate plan is no easy feat — but the benefits of having one are certainly worth all of the hard work. The main benefits of estate plans include:

  • Peace of mind: You’ll know that your loved ones will be taken care of to the best of your ability, and your estate won’t end up in the state’s hands. Additionally, you’ll have plans as to what should happen to you if you become unable to make your own medical decisions — which should also provide a sense of comfort and relief.
  • Protection of privacy: Having an estate plan — as opposed to just a will — helps protect your estate’s privacy by potentially avoiding the public probate process.
  • Save on taxes and fees: With an estate plan, you should have a strategy on how to minimize estate taxes, as well as any court fees that could come up in the probate process.

Do you need an estate planning attorney?

You might need to enlist the help of an attorney — or even a tax advisor — when crafting your estate plan, especially if you have complex situations such as having a disabled child, owing estate taxes or owning your own business.

Attorneys are often touted as well worth it when it comes to estate planning, as they can help you minimize taxes and fees and help you avoid costly mistakes. An attorney will also be able to help guide you through all of the different types of legal documents that are part of a well put-together estate plan.

A solid place to start shopping for an estate planning attorney includes the American College of Trust and Estate Counsel. If you’re concerned about costs, be sure to shop around for different quotes and get multiple bids.