Effective estate planning is a crucial component of your financial well-being, ensuring your wishes are honored and your loved ones are supported when you’re no longer here. Whether you’re protecting sizable assets, avoiding probate, or updating your beneficiaries, having a solid plan in place can save time, reduce stress, and provide peace of mind.
These estate planning tips will help you create a comprehensive plan tailored to your needs, ensuring that your legacy is handled exactly as you intend. But first, let’s start with a little background on estate planning.
What Is Estate Planning?
Estate planning is the process of organizing and preparing for the management and distribution of your assets during your lifetime and after your death.
Estate planning is a pivotal aspect of financial well-being, yet it is often disregarded. Your estate plan can provide important peace of mind by ensuring sizable assets are protected during your lifetime, plans are in place for your care should you become ill, and your property is passed down according to your wishes upon your passing.
Without a detailed estate plan, you will not have much of a say over how much goes to whom and little control over which items go to loved ones or charities you may want to support.
How to Start Your Estate Planning
Since estate planning involves creating legal documents and strategies to ensure your financial and personal wishes are carried out, it’s a good idea to seek professional support from your CERTIFIED FINANCIAL PLANNER™ professional and estate planning attorney.
A financial advisor will help you with the strategic planning and financial management aspects of your estate plan. Expect them to cover items such as asset organization and inventory, wealth transfer strategies, charitable planning, and beneficiary reviews among others.
While you need an estate attorney for the creation of all legal documents that will protect you and your family, such as wills, trusts, and powers of attorney.
Before you meet with your estate planning team, clarify your primary objectives. This could save you time and money when you meet with them. Here are some of the main estate planning goals for high-net-worth individuals and families to consider:
- Protecting inheritances for loved ones
- Minimizing estate taxes
- Avoiding the probate process
- Appointing the right trustee
What Documents Are Needed for Estate Planning?
Estate planning for large estates can be very challenging and complicated, especially for folks who need to consider tax laws, tax liabilities, and issues that affect their families. Here are documents that you’ll need to create, ideally alongside your financial advisor and an estate planning attorney:
- Will (including guardianship provisions for minors)
- Revocable Living Trust
- Financial Power of Attorney
- Healthcare Power of Attorney
- Living Will
- Irrevocable Trusts
Additional Resources: Estate Planning Checklist
Without the guidance of a financial advisor and estate planning attorney, many who go it alone make costly mistakes. These seven big estate planning actions can ensure that your friends and loved ones are taken care of after your death.
Estate Planning Tips Everyone Should Follow
Update your estate plan on a regular basis.
The first essential estate planning tip is to remember that your estate plan is not a “set it and forget it” event. As long as people keep living and their worlds keep evolving, there is likely the possibility that the plan they had put in place no longer works as intended. Life events, such as federal estate tax exemption changes and moving to another state, affect your estate plan.
Common events that will result in beneficiary changes or additions include births, deaths, marriage, and divorce. It’s also important to modify your estate plan if you purchased additional property(ies) or if your assets have grown (or diminished) significantly.
1. Don’t rely on joint tenancy alone to avoid probate
Wills only direct the transfer of specified assets at your death. Many assets pass outside of wills. For instance, assets titled in joint tenancy transfer to the surviving joint tenant, not per terms of your will. Be mindful that assets titled in joint tenancy only avoid probate at the first death. When the surviving spouse dies, the assets will ordinarily end up in probate. An increasingly popular way to avoid probate on these jointly titled assets is to transfer them to a revocable living trust, which you can change at any time. This revocable living trust is created while you are alive, rather than through your will. Accordingly, your assets are titled in the name of the trust.
2. Coordinate your will and trust
Upon your passing, your will governs who will receive property not otherwise designated by titling, the terms of a trust, or by beneficiary designation (such as on retirement accounts or insurance policies). Be sure your will and trust documents are aligned, so your intentions will ultimately be carried out. If the two documents contradict each other, there can be complications and possibly a long and expensive court battle when it comes time to distribute assets to your designated loved ones.
3. Title assets correctly
Make sure your wishes are carried out for all assets, including your primary residence, additional real property, bank accounts, taxable brokerage accounts, retirement accounts, and even cars. Name beneficiaries on all IRAs, employer-provided retirement plans, and other qualified accounts. Verify how other assets are titled to ensure they pass as desired.
4. Update beneficiaries
Be sure the beneficiaries assigned are still the ones you want. It may be years since you looked at the beneficiaries you named when you first opened these accounts. Frequently, former spouses and deceased family members remain assigned as beneficiaries. While they may have been suited at the time, these designations now should be reviewed and updated.
5. Designate successor or contingent beneficiaries
What happens if your primary beneficiary predeceases you? If you do not update the beneficiary designation, there will be no successor to receive the account assets upon your death. It is important to designate both primary and contingent beneficiaries on accounts. You can name multiple primary beneficiaries or list contingent beneficiaries who may receive the assets if the primary beneficiary predeceases you.
6. Update financial or healthcare powers of attorney
You may have selected someone to make financial decisions for you in the event you are incapacitated using a power of attorney. It is important to update your power of attorney if your relationship with this person changes. Otherwise, someone you may no longer trust could oversee your entire financial circumstances. Also, it is important that the person you select as healthcare power of attorney is comfortable carrying out medical decisions or wishes in the event you become incapacitated.
A comprehensive estate plan customized just to you and your needs, as well as your legacy and your heirs, will provide peace of mind and security knowing there is a plan in place for when you’re no longer with them. Consult a CFP® professional to tie all the different parts of your estate together in a plan that represents your wishes. The estate plan created with a CFP® professional can then be taken to a licensed attorney who can efficiently draft or update your will, trust, power of attorney, and end-of-life documents.
Your wellbeing is a team effort, and you shouldn’t go it alone. If you do not have a trusted advisor, consider hiring a fee-only CFP® professional to help you think through this complex topic and any other financial issues that may be top of mind. Team Hewins can help – contact us today to get started.
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