Securing Your Legacy: A Guide to Estate Planning

Securing Your Legacy: A Guide to Estate Planning

The Estateably Team
April 30, 2024

At Estateably, we help trust and estate professionals streamline administration with our industry-leading legal software. But we know that smooth and efficient estate administration goes hand in hand with a comprehensive estate plan. So, how can you make an estate plan to ensure that your property is divided up exactly as you intend?

In this guide, we’ll cover all the basics of estate planning. We’ll explore the process in detail, unpack the main components, and list some best practices to ensure that your wishes are carried out after your death.

What is Estate Planning?: A Quick Look

Quite simply, estate planning is a roadmap for managing your financial affairs after you die, or if you become incapacitated. When you make an estate plan, you set out how you’d like your assets to be distributed (for example, through bequests to your heirs). Estate plans also need to include arrangements for settling your debts (such as taxes) and appointing guardians for any children or pets.

While a last will and testament lies at the heart of most estate plans, your own estate plan will be individual to you. Estate planning for elderly parents, for example, might look very different to estate planning for business owners. Whatever your circumstances, it’s always a good idea to consult with legal and accounting professionals who are experienced in estate tax planning strategies. They’ll help you build an estate plan that suits your wishes and streamlines the estate administration process further down the line.

What is the Purpose of Making an Estate Plan?

Making an estate plan serves a vitally important purpose: protecting your loved ones in the event of your death. A good estate plan gives you control over what happens to your assets. Making a will allows you to name your beneficiaries and make specific bequests, as well as appointing guardians for your children. Without an estate plan in place, these decisions could end up in the hands of the courts.

Another key purpose of estate planning is to minimize the tax burden for your heirs and prevent them from facing unexpected tax bills after they inherit. Finally, a good estate plan can prevent any potential conflicts after your death. By laying out your wishes clearly, you can reduce the risk of squabbling, family feuds, or legal challenges.

The Step-by-Step Process of Making an Estate Plan

Ready to get started? Follow our checklist to build an estate plan that will preserve your legacy, help streamline the administration process, and protect the people you love.

Take Inventory Of Your Assets

The first stage in the estate planning process is compiling a thorough inventory of all your assets, including cash, investment accounts, real estate, and personal property. This list might include:

  • Accounts and policies, such as bank accounts, life insurance policies, and retirement policies, as well as your savings accounts and investment portfolios.
  • Real estate, whether that’s your family home, a rental home, or commercial property.
  • Personal property, such as jewelry, antiques, collectibles, and other valuables.
  • Business interests.
  • Personal property with sentimental value that you’d like to pass on to specific individuals.
  • Digital assets such as cryptocurrency.

In order to form a true picture of your estate, you’ll need to obtain accurate market valuations for assets such as real estate, jewelry, or art and consider any debts or liabilities—such as mortgages or loans.

Define Your Objectives

Before you explore estate planning strategies, it’s important to identify your goals. For many people, the prime objective is to provide for their loved ones and minimize taxes and administration costs along the way. Other common objectives include protecting your children (for example, by appointing a guardian) and providing for your own end-of-life care if you become incapacitated. You might also want to map out the process for managing and preserving your assets or even define a succession plan for your business.

Choose an Executor or Trustee

An executor is responsible for distributing your assets to beneficiaries in accordance with your will, while the role of a trustee is to manage the assets held within any trusts that you might set up as part of your estate plan. It’s important to make sure that you appoint people who are trustworthy and who have the necessary financial acumen and attention to detail to carry out your wishes. You can appoint the same person to act as both executor and trustee (although, of course, you don’t have to), and you can also name one of your beneficiaries as an executor—it’s very common for a spouse or civil partner to take on the role. However, if you do appoint a beneficiary as your executor, you’ll need to be confident that they won’t let their own personal interests get in the way of a fair distribution of assets.

Identify Your Beneficiaries

Next, identify your beneficiaries. You can name beneficiaries in individual policies, such as life insurance, as well as in your last will and testament. Many of these policies and accounts allow you to name a contingent or backup beneficiary in case your primary beneficiary is unable to receive the benefit. Ultimately, any decisions about passing on your assets are entirely up to you. However, it’s important to specify every bequest—even for small items of strictly sentimental value—as clearly as possible in your will in order to avoid any potential conflicts between your heirs.

Select Guardians for Dependents

Whether you have young children, beloved pets, or elderly relatives that you care for, you’ll want to make sure they will be properly looked after in the event of your death. Choosing a guardian is not a decision to be taken lightly: If you’re appointing a guardian for your children, it’s important to select someone who already has a strong bond with them and who will bring them up according to your values. While it’s not an easy decision, it’s an essential one. If you don’t appoint a guardian in your will, the courts will do it for you.

Draft Your Will

A will is the core of most estate plans and sets out how you’d like your assets to be distributed after your death. You’ll also name your executor and appoint any trustees or guardians. You can create your own will using an online platform or consult a lawyer; either way, it’s important to make sure you use the appropriate legal language and that the will is signed and witnessed according to state regulations. It’s also crucial to ensure your will aligns with any other documents—for example if a beneficiary is named in your life insurance policy, you’ll need to reflect this in your will, too.

Consider Establishing a Trust

A trust is a vehicle for holding and managing assets on behalf of a third party. While you don’t have to establish a trust as part of your estate plan, it can help minimize taxes due on the estate and may help bypass probate. There are different types of trust, including:

  • Revocable trusts, which can be amended at any time.
  • Irrevocable trusts, which cannot be changed and may offer protection against creditors.
  • Charitable trusts, which can benefit both charitable organizations and beneficiaries.

Plan for Taxes

One of the main goals of estate planning is reducing the tax payable on the estate. There are a number of different ways you can do this, including establishing a trust or giving gifts to your loved ones during your lifetime to reduce the value of the estate. Depending on your circumstances, you might want to look at AB trusts (for married couples), 529 plans for funding college, or estate freezing to “freeze” the current value of an asset.

Organize Important Documents

To ensure that your estate plan is followed after your death, give it every chance of success by organizing key documents so that they’re easy for your executor to find. Make sure that they can get hold of essentials such as your Social Security number, bank details, and investment portfolios so that they can quickly get up to speed.

Review and Update Regularly

It’s crucial to review your estate plan and update it regularly to make sure it reflects any change in your circumstances or family structure. As a very general rule, review your estate plan every 3 to 5 years or whenever you experience any major life events.

What Are The Main Components of Estate Planning?

While every estate plan is unique to the individual making it, there are a few key elements you’ll want to make sure you cover. Let’s take a look:

Will or Trust

A will defines how your property is to be divided, while a trust holds and manages your assets on behalf of a third party.

Durable Power of Attorney

This empowers someone to act on your behalf and manage your financial affairs in the event that you are unable to do so.

Beneficiary Designations

It’s important to designate beneficiaries for assets such as life insurance policies that don’t need to be assigned in your will.

Letter of Intent

This is a personal, informal document for your executor or beneficiaries to inform them of your wishes.

Healthcare Power of Attorney

This appoints an individual to make healthcare decisions for you if you become incapacitated.

Guardianship Designations

Guardianship designations nominate people to look after your children if you die prematurely.

List of Important Documents

It’s advisable to provide your executor with a list of key information such as your Social Security number and details of any bank accounts and insurance policies.

Who Needs an Estate Plan?

Everybody needs an estate plan—not just wealthy individuals. No matter what assets you may or may not have accumulated during your lifetime, it’s important to make sure that everything you own is divided up according to your wishes and that you have a plan established if you become incapacitated and cannot manage your own finances. If you have people who depend on you, it’s crucial to designate guardians in your estate plan to care for them after your death. An estate plan can also include your wishes for your funeral and make provision for your favorite charities.

What Documents are Included in an Estate Plan?

While every estate plan is unique, these documents form the basis of effective estate planning:

  1. A will or trust.
  2. Durable power of attorney.
  3. Beneficiary designations.
  4. Letter of intent.
  5. Healthcare power of attorney.
  6. Guardianship designations.
  7. List of important documents.

How Does a Will Differ from a Trust in Estate Planning?

A will is a legal document defining your wishes for your property after your death. It includes details of beneficiaries and individual bequests, any guardians you appoint, and your executor. A trust, on the other hand, is a legal arrangement for managing and holding assets on behalf of someone else—essentially, the trust becomes the owner of the property. There are many different types of trusts, including testamentary trusts, revocable trusts, and irrevocable trusts, and they’re often used to minimize probate. While a will only comes into effect after your death, a trust comes into effect as soon as it’s funded.

Can I Create an Estate Plan Without a Lawyer?

Yes, you can create a straightforward estate plan without a lawyer. However, it’s advisable to consult with a lawyer or accountant if there is any kind of complexity. A complex estate plan may include complicated investment or real estate portfolios, for example, or if you are balancing the needs and expectations of a blended family. International estate planning and estate planning for businesses are also areas where you might need specialist help.

What Happens if I Die Without an Estate Plan?

If you die without an estate plan, you lose control of how your property is distributed. The courts will decide how your assets are divided and appoint guardians for your children.

How Often Should I Update My Estate Plan?

There are no hard and fast rules, but it’s good practice to review every 3 to 5 years. You should also update your estate plan following any major life events. For example, if you divorce, you might want to update your will to make sure that your children inherit your property in the event that your ex-spouse remarries.

Who Should I Choose as My Executor or Trustee?

This decision is entirely up to you. However, it has to be someone you can trust to see that your wishes are carried out and who has the financial know-how to manage your affairs properly. There’s nothing to stop you from naming a beneficiary as your executor or trustee as long as you feel confident that they’ll prioritize the fair distribution of assets ahead of their own personal interest.

How Can I Minimize Taxes on My Estate?

There are various estate tax planning strategies you can adopt to minimize taxes on your estate. You might want to reduce your taxable estate by giving gifts during your lifetime within the annual exclusion limit. You can also move some of your assets into a trust to bypass inheritance tax. Other strategies include establishing a family limited partnership (FLP) or limited liability company (LLP), and minimizing taxes through charitable giving.

Can I Use My Estate Plan to Donate to Charity?

Yes, you can build charitable giving into your estate plan. As well as simply leaving money to your favorite charities in your will, you can also use charitable giving to minimize the tax burden on your estate. Giving to charity during your lifetime not only gives you a personal tax deduction but also reduces the size of your taxable estate. Then there are arrangements such as charitable lead trusts (CLTs) and charitable remainder trusts (CRTs) that benefit both the charities and your beneficiaries, as well as donor-advised funds (DAFs), which are private charitable funds managed by a third party.

What are the Consequences of Not Having a Health Care Directive?

A health care directive sets out your wishes regarding medical treatment in the event that you’re unable to make a decision or communicate with your doctor. If you don’t have a health care directive in place, you’ll still receive medical care, but you risk not being treated in the way you would like. For example, you might want to refuse certain treatments or have specific wishes about organ donation.

What Steps Can I Take to Ensure My Estate Plan is Followed?

The best way to ensure that your estate plan is followed is to make a robust estate plan and communicate your wishes clearly. Make sure that your documentation is organized and up to date, and talk to your executors, trustees, and any guardians you’d like to appoint to make sure they’re happy to take on these roles.

The Bottom Line

Estate planning is essential to ensure the smooth transfer of your assets to your beneficiaries. The process is about more than simply writing a will: You’ll also need to think about limiting tax liabilities, appointing the right executor, and making sure that all the paperwork is in place to ensure a streamlined administration process and reduce the risk of family conflicts and legal challenges.

A good estate plan lays the foundation for efficient estate administration further down the line—which is where Estateably comes in. The Estateably platform offers a one-stop software solution that powers up this next stage of the process. Through document automation, report generation and robust accounting tools, we help trust and estate professionals streamline estate administration to modernize your legal practice. Schedule a demo to find out more.

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