9 Steps to Creating Your Estate Plan

July 30, 2019 By Jared Ripplinger

Clients often come to us for advice on creating an estate plan. As financial professionals, we understand how overwhelming this task can feel. There are countless opinions out there, not to mention the fire and brimstone feeling that accompanies anything involving an attorney. To help make this process a bit easier, we thought we’d put together a checklist to help our readers get started.

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Why is an Estate Plan Important?

Ask any probate lawyer and they will tell you, “Plan your estate or the state will plan it for you.” This might not seem all that unsettling if you have a tight-knit family that doesn’t tend to disagree. An even more common justification for ignoring this process is when an individual doesn’t have a high net worth. What’s to plan? However, there is much more to the story. For example, if you’re married with children and you and your spouse get into a fatal accident you can count on the state to choose a guardian for your children. Granted, this is an unlikely scenario, but it does happen. It’s probably safe to assume that you are far more prepared to make this decision than the state.

You may also want to read: Estate Planning Strategies to Reduce or Even Avoid Estate Tax

Do I Need an Estate Planning Attorney?

For some of this process, you will indeed need to interface with an attorney. If convenience is an important factor for you, you can find a probate law firm that will walk you through each step of the process. However, if you’re more of a do-it-yourselfer, then it’s possible to compile necessary documents using online tools and simply pay for submission to the state. It just depends on how much you’re willing to do to save some money.

1. Execute a Last Will

The best place to start for a bulletproof estate plan is drafting and submitting a proper last will. If you do not clearly define how you would like your assets and guardianships to be transferred, the state will make those decisions for you. This can lead to disputes and loved ones left in difficult situations. Once your will has been written you will need to assign an executor who will manage the process of asset transfer in the event of your passing. Unfortunately, this process will still require your loved ones to navigate the process of probate courts. Depending on your net worth, this can be both time-consuming and expensive. If you are a high net-worth individual, it might be worth considering a living trust.

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2. Consider a Living Trust

Do you own a business or have a high net worth? It might be worth considering a living trust. This process is more expensive and time-consuming than a living will, it also requires regular maintenance that can be irritating if you have a busy schedule. The upside is that it allows your loved ones to avoid probate court. This can save a lot of time, money, and stress. If you own a business this can be particularly valuable. Having important business decisions getting hung up in probate court can negatively affect the lives of your employees. You’ll still want a living will as a backup document, luckily you can name the same person to be the will’s executor as your trust successor.

Assign Medical and Financial Power of Attorney

Postpone your hang-gliding trip until you get this step done. When it comes to estate planning, death is not the only concern on our minds. It’s also important to consider a situation where you become incapacitated. For example, if you get into an accident and end up in a coma. By drafting a medical directive and assigning power of attorney to a trusted loved one, you can rest assured that the proper decisions will be made in the event of your indisposition. Again, business owners might find this especially beneficial. Having a trusted agent looking out for your interests can also benefit your employees.

3. Look Out for Young Children

Estate Planning is often driven by concern for adult children’s well-being. However, it’s just as important to have a plan in place while your children are young. As mentioned earlier, having a guardianship plan is of paramount importance while your children are young. You do not want the state making this decision. Going a step further, you also want to make sure your assets are managed by a competent adult until your children come of age. Having a financial windfall at a young age, while your children are grieving is a bad situation for obvious reasons. Not only can they make decisions that will harm their financial future, but harming their health is just as easy. 

4. Consider Life Insurance

There are few decisions you can make that your loved ones will thank you for more than life insurance. These policies can help with leftover debt, and funeral costs, or even replace your income to avoid your spouse having to downsize their lifestyle. Life insurance is also a great way to enjoy tax-deferred growth on the capital gains your policy realizes. The cash value of your policy isn’t taxed unless you withdraw it. You can even borrow against the cash value for a down payment on a house or send your kids to college without being taxed. It can’t be stressed enough, get some life insurance.

5. Name a Beneficiary on Your Financial Accounts

Most bank, investment, and retirement accounts can have a “payable-on-death” beneficiary named. Doing this will avoid long delays due to probate processing and get your assets in the hands they need to be in quickly. Imagine losing your spouse, being hit with funeral and probate costs, only to have finances to handle these obligations frozen. This situation is easily avoided by naming a beneficiary.

Taking this preparation a step further, it’s a good idea to set money aside for funeral costs if you’re able. Again, this money can be tagged as “payable-on-death” and can significantly ease the burden of your death. Your loved ones will have enough on their mind.

6. Understand Your Estate Tax Eligibility

Most of us don’t need to worry about this one, however, if your net worth is more than $11.4 million then the government is going to hit you with a hefty estate tax. There are ways to soften the blow here, however, it varies from case to case. If you are a high net-worth individual, speak to a probate attorney to prepare your estate for this situation.

7. Prepare Your Business

If you have a business with employees, you have a responsibility to ensure they are protected. Every business is different, so this will need to be navigated carefully. Some business owners will name a successor in the event of their passing. Others will have a pre-defined buyout agreement prepared and ready to be executed right away. If you own a business, it’s worth giving this some thought. If you take every step you can to take care of your employees, they will return the favor. CMP specializes in business succession planning, be sure to contact us if you own a business and want to ensure it is properly passed on.

8. Write Your Last Wishes

Last wishes are a great way to protect your legacy. By defining what happens to your organs, how your remains are processed, or what kind of funeral you would prefer you can set the tone for how you are remembered. Some people even make a foray into strange eccentricities by requesting strange things like being buried in a car.

9. Take it One Step at a Time

We have laid out a lot to do here and it’s no doubt that estate planning can be an overwhelming process. The important thing is not to accomplish everything in a day, but to simply get started. Maybe add one task to your schedule per week until your entire plan has been built. Remember, Rome was not built in a day!

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