Seven Steps To Your Estate Plan

When I ask most people whether they have an estate plan, one of the more common responses I get goes something like, “Oh, but it’s really complicated to do, and I just don’t want to deal with it.”  Well, a good estate plan does not need to be any more complicated than you want it to be.  Like anything else, if one breaks the task down to bite-sized steps, then it becomes a much less daunting process.  If you follow these next seven steps, then you will be well on your way to setting up an estate plan that will meet your and your loved ones’ needs.

Step 1: Check Your Beneficiaries.  If you have life insurance, an IRA, or are a participant in a 401(K) plan or profit sharing plan, then you have filled out beneficiary designation forms.  In some cases, you may have filled out your beneficiary form several years ago, and have not thought about it since then.  Pull them out of your files, or, if you cannot find them, obtain copies from your insurance agent and plan administrator, and review them carefully.  For example, I recently reviewed a 401(K) beneficiary designation form for a client.  He left all of his account, which was over $500,000.00, to his first wife that he divorced a decade ago.  He has since remarried.  He told me that I saved him a lifetime of sleeping on the couch when I pointed that out to him and helped him update the form.

Life insurance proceeds and retirement assets do not pass through the probate process, and if you set things up correctly, you can avoid many of your other assets being shuttled through the probate process.  (Please see my earlier post: “Trust or Will: which is the better choice for your estate plan?” to learn how you can avoid probate altogether.)  For example, you can open your bank account as a payable-on-death account so that the proceeds will transfer immediately to your spouse or other named beneficiary.  So, review and update your beneficiary designations.

Step 2: Get a Will (a Trust Would Be Even Better).  A basic will ensures that your estate passes to the people who you intend.  Failing this, your estate will pass according to the state’s intestacy laws, which may result in a different outcome than you would have wanted.  A will also names an executor who has the chore of making sure your debts are paid, your assets gathered, and your assets get to the people you want to have them.  You can also name guardians for your kids in a will.

I strongly recommend that you consider using a revocable trust that will pass your property to your heirs just as a will, but unlike wills, avoids probate.  Another advantage of a trust is that you can control how your kids will receive their inheritance from you rather than them receiving it in a lump sum at a time in their lives that you may not have preferred.

Step 3: Write a Letter.  If you are not going to use a trust as your main estate document, and rely instead on a will, it might be a good idea to write a letter to your heirs describing what specific personal property items you want to pass to your heirs.  This will alleviate your kids fighting over who gets the cuckoo clock that your Aunt Mary left to you.

Step 4: Get a Durable Power of Attorney (POA).  Statistically, you will become incapacitated before you will die.  Who will take care of your finances if that happens?  Even if you are married, some institutions will still insist that your spouse have a power of attorney authorizing him or her to transact your business.  You could also name a trusted friend or relative as your POA if your spouse is unable or unwilling to act for you.  Be careful when you make this decision, however, as relatives have been known to steal from each other.  Shocking!  But seriously, sometimes it may be wiser to choose a trusted professional, such as your lawyer or an accountant, to act as your POA.  Talk to them about this first, however, before naming them.

Step 5:  Get a Health Care POA.  What happens if you do become incapacitated and your doctor needs someone to make medical decisions for you?  If you do not have a medical POA, then that scenario could potentially set up a fight between your spouse and adult children, especially if they disagree on the course of treatment.  By naming your spouse or some other trusted individual as your health care agent, you avoid any potential problems for your family during a pressure packed situation.  In addition, you could put your specific end of life decisions in writing, so your loved ones are not left wondering whether to keep you alive on the feeding tube.

In addition to the health care POA, you should also have a HIPPA waiver that would enable the people you name to have access to your medical records and talk to your doctors.  They would not be able to participate in making decisions for you, but they would be kept in the loop during the course of your treatment.  I can tell you from personal experience that this is a very handy document that sometimes is overlooked.  Get one, and name your spouse, kids, and anyone else that you want to have access to your records.

Step 6:  Avoid Estate Taxes.  Wisconsin has abolished the estate tax, and the federal estate tax will not kick in until you have an estate in excess of $5.4 million (in 2016), which, for a married couple, increases to twice that.  However, the law is a living, breathing animal, and it can change.  So, make sure that whomever you are leaving behind understands that to take full advantage of the tax laws that they should file an estate tax return for you even if no tax is due.

Step 7:  Organize Yourself.  Keep all of your estate planning documents, your financial records, and related documents in the same place.  Now that we have this wonderful thing called the Internet, many online storage systems enable you to create digital files out of everything.  Make sure that whoever your executor or trustee is knows where your records are located and that they have authorization to access them should you die.  They will thank you for this later.

Remember that the only consistency in life is change, and that the estate plan you create today may not work for you in the future.  That is why it is vitally important to review your estate plan regularly.  I review my clients’ estate plans every three years at a minimum and update them as necessary so that their plans remain relevant.  Please let me know if you would like me to help walk you through the steps of the estate planning process.