how to create an estate plan

15 Steps for How to Create an Estate Plan

Have you created an estate plan that lays out how you’d like your assets to transfer to your heirs when you die? If you’re like 68% of Americans, you likely haven’t. And that could leave your loved ones wrestling with probate court, which can be agonizing when they are already grieving your passing. Not to mention the cost that’s associated with probate. Instead, let’s look at how to create an estate plan and the 15 things you should consider along the way.

1. Create a will.

A will is a basic part of an estate plan. Essentially, it provides instructions on how to disperse your assets when you die if you have not named beneficiaries. Without a will, your probate property will pass to your survivors based on your state’s laws of intestacy. Generally, that means that your assets will be split between your spouse and children. That might not be an issue—unless your spouse is not the parent of your children or you have a blended family. If you are single when you die, your assets will go to blood relatives, even if you would have preferred a friend to inherit them.

2. Consider a trust.

When thinking about how to create an estate plan, one of the keys that many individuals don’t consider is a trust. However, this is one of the strongest ways to ensure your wishes are carried out. If you transfer your property into a living trust, your survivors won’t have to go through probate court. The trust will allow you to direct how your property should be managed in the event of your mental incapacity or disability, as well as how your assets should be disbursed upon death.

3. Protect your children.

For most parents, protecting their children is their #1 goal while they’re alive and long after they’re gone. To designate who will care for your minor children when you die, part of how to create an estate plan should include naming a guardian. This is the person who will be responsible for raising your children. If you don’t state the person you would like to raise your children, the court will make that decision for you—and them.

In addition, you need to designate a trustee to manage the assets that your children will inherit. Parents can choose for the guardian and trustee to be the same person, but they may designate different people. After all, the person who is the best caregiver for your children may not be the best choice to oversee their financial future, and vice versa.

4. Review your beneficiaries.

Any investments you have, such as life insurance policies, annuities, and retirement accounts, use a beneficiary designation form to assign where assets will go when you die. When you create an estate plan, it is important to keep your beneficiaries up to date. You should also plan to review these policies regularly as life events occur.

5. Create advance healthcare directives.

Part of how to create an estate plan should include advance care planning, namely healthcare directives. The documents that are included in this plan are:

  • Living will: provides instructions if you are dying or unconscious and cannot voice your decisions about emergency treatment
  • Durable power of attorney for healthcare: names a healthcare proxy to make decisions on your behalf when you are unable to do so
  • HIPAA authorization: allows someone else to have access to your medical records

6. Create a financial power of attorney.

With a durable power of attorney for finances, you can give a trusted person authority to manage your finances and property if you become incapacitated and unable to handle your own affairs. That person is called your agent or attorney-in-fact (but doesn’t have to be an attorney).

7. Consider life insurance.

Life insurance provides financial support for your loved ones when you die. If you have small children or significant debts, a life insurance policy is a smart way to help your family avoid financial challenges when your income is no longer available.

8. Understand estate taxes.

Estate tax is a tax on property transfers when you die. The federal government uses fair market value, the total of which is called the gross estate. This may include cash, securities, real estate, insurance, trusts, annuities, and business interests.

In 2020, combined gross assets and prior taxable gifts exceeding $11,580,000 will need to file an estate tax return. 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 US citizen) are tax free.

9. Anticipate the cost of funeral expenses.

In addition to the emotional challenges your loved ones will face when you pass, there is the cost of the funeral. In the US, the National Funeral Directors Association states that the average funeral cost is $7,360 and a cremation costs $6,260 on average.

Instead of leaving your family to worry about these costs, part of how to create an estate plan may include a payable-on-death bank account that has the funds needed to pay for these expenses.

10. Make final arrangements.

Let your heirs know now, verbally and in writing, what you would like to happen when you die. Whether you want to donate your organs, be buried, or be cremated are important considerations to share.

11. Protect your business.

One of the things that many people forget to include in their estate plan is their business. If you are the sole owner of a business, you should have a succession plan in place. And if you own a business with others, you should create a buyout agreement.

12. Store your documents.

The people you name to take care of your property, whether an attorney in fact, your executor, or trustee, will need to know about your property and where to access your documents. To avoid making that person spend unnecessary time and effort trying to figure out what to do, consider keeping a folder or notebook with your important documents, a list of your assets, and the names and telephone numbers of your professional advisors. Remember to include a list of your online accounts and passwords as well. Get a home safe or firebox for these documents and make sure someone else knows where the key or combination is.

13. Leave a letter.

When you look at how to create an estate plan, one of the things those who are left behind will miss most is you. Some people choose to leave a letter (or several letters) or video to say goodbye to their family and friends. Not only does this allow you to share your thoughts and feelings, but it can provide much-needed closure during a time of deep grief. Though not a legal document, those last words can mean a great deal to your loved ones.

14. Review your plan.

While it may seem like a one-time effort to write an estate plan, it truly is a living document. It should be reviewed every five years as well as following any major life changes, such as births, deaths, marriages, and divorces. During that review process, you can ensure that your documents are current with your wishes, your beneficiaries are up to date, and your designated guardians and proxies are still living and able to fulfill your wishes.

15. Don’t do it yourself.

One of the most important things to remember is that how to create an estate plan can be complicated. The problem with using DIY estate plans on line is that you do not know what you do not know – that is the consequences of your choices. Those forms are created to service millions of people and so are very generic. Certainly, if you have a lot of assets, a business, or a blended family, you may need professional assistance.

Poulos Law Firm has extensive experience drafting estate plans for individuals. Contact us to learn how we can help ensure that your legacy is designed according to your wishes.

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