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Estate Planning Checklist: A 7-Step Guide - Werner Law Firm

A 7-Step Estate Planning Checklist of the Basics

Troy Werner and his family

Written by Troy Werner

Troy Werner has been an indispensable asset to The Werner Law Firm since joining in 2009, providing exceptional legal service to its clients.

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POSTED ON: May 24, 2021

Estate planning is the management of assets for their eventual reallocation after death. Under most circumstances, we can’t take the things we own to the grave – or at least, we can take very little to the grave. You might request to be buried in your car, for example – but most assets (and properties, […]

Estate planning is the management of assets for their eventual reallocation after death. Under most circumstances, we can’t take the things we own to the grave – or at least, we can take very little to the grave. You might request to be buried in your car, for example – but most assets (and properties, especially) need to find a new owner after the previous owner’s passing.

An estate plan allows you to designate beneficiaries and heirs, plan how your assets should be divided and used, and even provide directives for how your assets should be distributed – i.e., immediately or over the course of months and years. Estate plans aren’t exclusively used to manage and distribute things – they can be used to manage and distribute decision-making rights, as well. A comprehensive estate plan will include representatives and directive documents in the event of mental incapacity and near-death.

You may include a legal document ruling out extensive life support in your estate plan, for example, or name a sibling or close friend as your personal representative for financial and business matters should you become legally incapable of managing your own affairs. The key feature of any estate plan is flexibility. You don’t need to take full advantage of every legal concept under the sun – you can mix and match directives and documents to create an estate planning checklist that best suits you and your family.

Why Do I Need an Estate Planning Checklist?

Estate plans are not exclusive to the elderly and early retirees. Estate plans serve as both contingencies for families of all ages (from young parents to great-grandparents), as well as powerful tools in matters of:

      • Investments
      • Tax preparation
      • Asset protection
      • Asset management

An estate plan can be used to ensure that a loved one who struggles to manage their own finances is well taken care of. It can be used to ensure that your child’s guardianship in the event of your death is clearly defined. It can be used to protect specific assets and properties from creditors and avoid the complications of ancillary probate caused by having assets across state lines. You need only properly define your interests and priorities – and work with someone who knows what they’re doing. A comprehensive estate planning checklist can be summed up in the seven simple steps below.

STEP 1: Take Stock of Your Estate

What will you leave behind when you die? The size and complexity of your estate can affect your plan. On the other hand, smaller estates can lead to a simple and neat expedited probate process. Certain estate planning checklist tools can help you reduce the size of your probatable estate, so your heirs don’t have to worry about an extensive and costly probate process without requiring every single asset to be accounted for in an alternative arrangement (like a trust).

Having a clear idea of where what, and how much you can help you figure out what assets may require special attention in an estate plan to avoid problems such as (but not limited to):

      • International assets
      • Boats in other states
      • Second homes or vacation homes

Unexpected items may vastly increase the value of your estate after death and incur a significant tax – such as life insurance pay-outs. Therefore, it’s important to keep track of tangible assets (homes, vehicles, collectibles, land) and intangible assets (stocks, mutual funds, retirement accounts, life insurance, bank accounts, ownership in a business). Knowing what you have is the first step to setting up a trust or will to distribute your assets after death.

STEP 2: What Will Your Family Need?

What are your priorities with regards to what you intend to leave behind? First, consider covering the basics, such as:

      • Naming a guardian for your child. A last will is usually the ideal way to name a guardian for your children.
      • Setting up life insurance. Life insurance can be helpful if you want a financial cushion to ensure that your child can pursue higher education or to fund their care.
      • Reducing the tax burden on your estate. Careful consideration is needed to determine the impact both state and federal taxes will have on your estate and how to safely minimize them - thereby leaving more behind for your loved ones.

STEP 3: Consider Your Legal Directives

Leave behind directives or contingencies to guide your loved ones to make decisions on your behalf, such as (but not limited to):

      • Medical directive or living will. This document specifies certain procedures or kinds of medical care and provides or revokes permission for them.
      • A durable power of attorney. This power of attorney grants an agent certain representative rights, even if the principal is incapacitated.
      • Limited power of attorney. This is a power of attorney that may be written to limit an agent’s power to a specific action or at least a limited scope – such as only overseeing the sale of a home.
      • Trust. A trust is a legal entity managed by a trustee for a chosen beneficiary. The trust’s grantor funds the entity; the trustee oversees the trust’s income and management until it is distributed/dissolved, as per the grantor’s wishes. The purpose of a trust is detailed in a trust document.

STEP 4: List Your Beneficiaries

Accounts, properties, and vehicles may, under certain circumstances, be directly passed onto others after death via beneficiary clauses/designations. These need to be updated, and it is important to keep track of them over the years. A beneficiary designation can be an easy way to distribute an asset to a loved one or trusted friend without going through extended probate.

But, unfortunately, beneficiaries can die, too – sometimes before you do. So naming contingent beneficiaries is a good way of ensuring that you aren’t simply moving your asset into another person’s carefully planned estate or involuntarily giving it to their heirs.

STEP 5: Beware of Estate Taxes

Federal estate taxes currently only affect a tiny percentage of Americans, though that may change soon. The tax rate on estate taxes is high, resulting in a steep cut for some estates. The lifetime gift tax exemption limit also shares the exemption limit on federal estate taxes. Thus, a lifetime of hefty giving can reduce a person’s exemption limit for what they leave behind after death. Some states also levy state estate taxes, affecting more Americans as they typically include lower exemption limits.

STEP 6: Consult an Estate Planning Professional

Consider working with an estate planning professional not only to reduce your tax burden but to consider what else your plan might need carefully. A good estate plan is tailored to a person’s circumstances. Some states require a more complicated plan, while a simple one best serves others.

STEP 7: Don’t Forget to Follow Up

Estate plans are not written in stone and need to be changed over the years – just as life does. We may not always intend to leave certain things to certain people. Consider scheduling a follow-up on your estate plan at least once every five years or after a major life-changing event in the family.

A good estate plan may take time to craft and finalize, as well as time to review and amend, but it is always worth avoiding the stress, heartache, and pain of a messy inheritance and probate process.

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