10 Tips for Successful Estate Planning

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Financial Wellness

10 Tips for Successful Estate Planning

3 min read Apr 01, 2020

Think estate planning is only for the wealthy?  Think again. Not having an estate plan can lead to confusion about your end-of life wishes, as well as emotional stress for your family.                  

What’s the difference between a will and an estate plan? An estate plan provides detailed directives for all your assets, trusts, guardianship wishes, and more. It goes a step further than a will, and you’ll be glad you did it. Here are ten tips to create an estate plan like a pro.

1. Assemble a Team   

Working with a team that includes a financial advisor, tax professional, and estate planning attorney can help you map out a complete estate plan that’s customized for you. Each person plays a critical role in the process. The goal is to ensure distribution of your assets to the people and/or organizations you wanted with as little confusion as possible. 

2. Document Your Wishes

Your estate plan should clearly spell out what you want to have happen to your probate assets and possessions at your death. Without it, the state may make those decisions for you. Make sure your estate plan includes the following components:

  • Healthcare power of attorney or proxy: Assigns the person you want to make health decisions for you if you are unable.
  • Durable financial power of attorney:  Determines the person who will make financial decisions if you are unable.
  • Living will: Provides clear instructions about what treatments you do and do not want if you are unable to speak for yourself.
  • Health Insurance Portability and Accountability Act (HIPAA) Release form: Allows named individuals to have access to healthcare information.
  • Last will and testament: Allows you to designate beneficiaries for your property and choose guardians for minor children.

3. Set Up Guardianship for Dependents

You’ll need to name a guardian to look after any dependents, such as a minor or a person you care for with special needs (if you don’t, a judge will appoint one for you).

Make sure you talk to your chosen guardian ahead of time to get his or her consent. But remember that he or she doesn’t have to be the person managing the money left for your child’s benefit.                  

Another thing to consider: Naming a couple as co-guardians could get tricky if the couple divorces. Talk to your estate planning attorney about how to prepare for this circumstance.           

4. Consider Trusts

Think of a trust as a container designed to hold money for your heirs. You decide what you’re going to put into the trust, who gets what, and how it’s distributed.     

A properly structured trust can help ensure that your plan is executed exactly the way you intended. Be sure to work with an attorney who specializes in dealing with estate planning and trusts.

5. Plan for Federal and/or State Estate Taxes

If your estate is subject to federal estate taxes, keep in mind that they are generally due, in cash, within nine months of death. This may be a concern if much of your estate is not actually in cash. That could potentially mean selling assets, like a house you may have wanted to leave to an heir.

Talk to a tax professional who can work with your attorney and financial advisor to determine which estate tax planning strategies may be appropriate for your circumstances.

6. Avoid Probate     

Simply put, probate is the legal process of verifying your will through the courts. It can be slow and costly, and it isn’t private—it’s a matter of public record. 

Good news: Your assets may not need to go through the probate process. Discuss probate laws with your attorney, so you know what to expect.          

7. Prepare for Long-Term Care

Suppose you or your partner requires expensive long-term care that cuts into the assets you may have originally earmarked for your heirs. A financial advisor can help you prepare for long-term care needs while preserving your assets. Make sure to discuss your options and come up with several plans, in case your health changes.          

8. Know about Income in Respect of a Decedent (IRD)

The Federal Estate Tax is not the only tax you need to be aware of. A little-known tax that hits people who inherit certain types of money is called Income in Respect of a Decedent, or IRD. If you die and you have income that hasn’t been taxed, your estate or your beneficiaries will have to pay income taxes on that money.

Examples include savings bond income, individual retirement account payouts, and sales commissions — income you would have received had you lived.

Consult with your tax professional to ensure you have a complete estate plan that includes all tax scenarios.

9. Keep Your Beneficiaries Up to Date

One loophole to look out for: Any money you have in accounts with named beneficiaries will go to those individuals, even if your estate plan says otherwise. That includes a 401(k), IRA, insurance policies, as well as payable-on-death and transfer-on-death accounts.                    

Keep your beneficiary designations aligned with your estate plan to ensure there are no conflicts.    

10. Don’t Forget About Digital Assets

Most of us have a lot of treasured photos and important documents saved in social media accounts and digital file storage services that may be inaccessible to others.                     

Service providers often won’t disclose a deceased person’s passwords, and there are very few laws to help in this situation. What should you do? Designate a “digital fiduciary” in your estate plan. That person would have the right to access digital information, such as login names and passwords. And don’t forget to work with an attorney to shut down your online presence, if that’s your wish.

Estate planning is one of the most proactive, organizational steps you can take in your lifetime. And the benefits will be part of your legacy. 

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Nothing in these materials is intended to be advice for a particular situation or individual. These materials are for general information purposes only.