You may have heard that you need to make an "estate plan," but what does an estate plan cover and how do to make one? Here is a simple list of the most important estate planning issues to consider.
Make a will.
In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.
Consider a trust.
If you hold your property in a living trust, your survivors won't have to go through probate court, a time-consuming and expensive process.
Make health care directives.
Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration ("living will") and a power of attorney for health care, which gives someone you choose the power to make decisions if you can't. (In some states, these documents are combined into one, called an advance health care directive.)
Make a financial power of attorney.
With a durable power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn't have to be an attorney).
Protect your children's property.
You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.
File beneficiary forms.
Naming a beneficiary for bank accounts and retirement plans makes the account automatically "payable on death" to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.
Consider life insurance.
If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.
Understand estate taxes.
Most estates -- more than 99.7% -- won't owe federal estate taxes. For deaths in 2017, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.49 million. (This exemption amount rises each year to adjust for inflation.) 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 U.S. citizen) or tax-exempt charity are exempt from the tax.
Cover funeral expenses.
Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.
Make final arrangements.
Make your end-of-life wishes known regarding organ and body donation and disposition of your body --
burial or cremation.
Protect your business.
If you're the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.
Store your documents.
Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:
Keeping your documents organized will be a great help to your survivors.
Estate planning isn't only for the rich. Without a plan in place, there could be a long-lasting impact on your loved ones, even if you don’t have a pricey home, large IRA or valuable art to pass on. Not convinced that estate planning is necessary? Consider these four reasons why you should have an estate plan, in order to avoid potentially devastating consequences for your heirs.
By Donna Fuscaldo | Updated May 25, 2018
It’s not unusual for a person to sign the documents and say to the attorney, “I don’t really know what I signed.” Every estate plan has unique features, but the same problems and mistakes recur. Each classic mistake is avoidable.
Bob Carlson is the editor of Retirement Watch.
Apr 20, 2018, 12:20pm
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