You Can’t Take It With You: Estate Plan Basics

Estate planning is a gift that everyone should give to their loved ones. If you have no estate plan when you die, you risk plunging your family into financial and legal chaos. But armed with a plan, your family will know your final wishes.

How to Get Started

The first step to create an estate plan is to compile a complete inventory of your assets and liabilities. This includes your primary residence and any additional homes, investments, bank accounts, family-owned businesses, and the cash value of your life insurance. Review all titles to determine ownership. Don’t forget personal property, such as antiques, jewelry, and other collectibles.

Second, review your beneficiary designation on all retirement accounts, annuities, and life insurance contracts. This seems obvious, but not naming beneficiaries is a common mistake. It’s also wise to name a contingent beneficiary.

Lay the Foundation with a Will

A will is your opportunity to protect your family’s future. In your will, you specify exactly what you want to happen to your assets after you die. With a will in hand, your family can avoid the delays and expenses of you dying intestate (without a will).

A will achieves three things:

• It states how you want your property distributed when you die.
• It names an executor or personal representative to settle your final financial matters.
• It names a guardian for any minor children or adults with special needs.

Keep in mind that if you don’t name an executor, the probate court will appoint someone to manage and distribute your property. A court-appointed administrator probably won’t know your family and their needs the way your executor would know them.

There Are Some Things a Will Can’t Do

Your will is no help if bad things happen to you during your lifetime. Fortunately, there are other estate planning tools, called advance directives, that can help.

• A living will spells out the conditions for receiving life-sustaining treatment. This document provides guidance for family members during an emotionally trying time.

• A durable power of attorney for health care (also called a health care proxy) authorizes a trusted person to make medical decisions for you if you’re unable to make them yourself.

• A durable power of attorney for finances names someone else to act for you in financial matters if you become incapacitated.

Clearly defining your choices and identifying who can make decisions for you is an important part of any estate plan.

Consider A Trust

If you already have a will, why create a trust? Like a will, a trust transfers property. But, unlike a will, a trust can take effect at any time to distribute and manage assets and save taxes. If you have a sizeable estate, a trust may offer significant benefits. A trust can provide lifetime income to an individual and eventually pass the remaining property to heirs. A trust can also ensure professional asset management, protect assets for financially inexperienced beneficiaries, and help you take advantage of tax law benefits to reduce estate taxes.

There are several types of trusts, but all are based on one of three models.

• A testamentary trust is created by your will and funded by your estate. Its goals are to save estate taxes and provide long-term management of estate assets.

• A living, or inter vivos, trust is established during your lifetime to manage assets and transfer property outside of probate.

• A pour-over trust is created during your lifetime but funded after you die with payouts of pension benefits, life insurance, or other property that you haven’t specifically transferred to a person by gift, trust, or will.

Determining the right kind of trust for your personal circumstances is complex and requires professional guidance.

Make a Plan and Keep It Current

Once you have an estate plan in place, you should review it regularly or as your circumstances change, such as births, deaths, marriages or significant changes in your financial life. An estate plan is a wonderful opportunity to take care of the people who mean the most to you.

This article is intended to provide you information about estate planning and is not intended to imply legal advice. You should contact an attorney to discuss your specific situation.