Section 5: Planning Process
Creating an estate plan requires gathering information, making decisions, executing documents properly, and maintaining your plan over time to ensure your plan still is in line with your wishes as years pass. Following a structured process ensures you address all necessary issues and create an effective plan.
Information Gathering
Begin by compiling detailed information about your family and your assets. For each family member, record full legal names, dates of birth, Social Security numbers, and current contact information. Document any previous marriages and gather copies of divorce decrees, child custody orders, child support obligations, and alimony agreements, as these may affect your estate planning options.
Create a comprehensive inventory of your assets including real estate with copies of deeds and mortgage information, bank accounts with account numbers and approximate balances, investment accounts including stocks, bonds, and mutual funds, retirement accounts such as 401(k)s, IRAs, and pensions with beneficiary designation forms, life insurance policies with policy numbers and death benefit amounts, business interests with partnership agreements or corporate documents, vehicles with titles and registrations, and valuable personal property such as jewelry, art, collections, and family heirlooms with approximate values.
Document your liabilities including mortgages, car loans, credit card debt, student loans, personal loans, and tax obligations.
Review current beneficiary designations on all retirement accounts and life insurance policies. These beneficiary designations control who receives these assets regardless of what your will says, so ensuring they align with your overall estate plan is critical. Many people forget to update beneficiaries after major life changes, leading to unintended results.
Gather copies of any existing estate planning documents including current wills, trusts, powers of attorney, healthcare directives, and guardianship nominations. Review these documents to understand what planning you have already done and what needs to be updated or created.
Decision Making
With your information organized, you can make the key decisions that will shape your estate plan. Start by deciding who should receive your assets after your death. You might make specific gifts of particular items to certain people. Decide how to divide your residuary estate (everything not specifically given away) among your beneficiaries. Consider whether to distribute assets equally or whether different circumstances warrant different distributions. Think about what should happen if a beneficiary dies before you. Should their share go to their children, be divided among surviving beneficiaries, or go to someone else?
For parents with minor children, you must decide who should serve as personal guardian to raise your children day-to-day and who should manage any inheritance as property guardian or trustee. Consider whether the same person should fill both roles or whether different people might be better suited for each responsibility. Think about how you want funds to be used for your children's benefit, including education, healthcare, living expenses, and other needs. Decide at what ages children should receive their inheritance outright or whether funds should be held in trust until they reach financial maturity.
Select individuals for each fiduciary role in your estate plan. Choose a healthcare agent to make medical decisions if you cannot and at least one alternate. Select a financial agent to manage your finances if you become incapacitated and at least one alternate. Name an executor to manage your estate through probate and at least one alternate if you are creating a will. If creating a trust, name successor trustees to manage the trust when you cannot and at least one alternate. Consider who should make decisions about your final arrangements and ensure they understand your wishes.
Make decisions about your healthcare wishes, including what quality of life means to you and what circumstances you would find acceptable or unacceptable. Consider what treatments you would want or refuse in end-of-life situations such as terminal illness, permanent unconsciousness, or end-stage chronic conditions. Think about your feelings about life-sustaining treatment. Document your values and preferences to guide your healthcare agent.
Document Execution
Read every provision and ensure you understand what each document does. Verify that all names, addresses, and other information are correct. Confirm that the documents accurately reflect your wishes. Make note of any questions or concerns to discuss with your attorney. When you are satisfied with the documents, they must be signed properly according to your state's requirements.
Trust Funding and Beneficiary Updates
If you created a revocable living trust, funding the trust is essential. Assets not properly transferred to the trust will not avoid probate and may not be distributed according to your trust instructions. For real estate, execute and record new deeds showing the trust as owner. For bank and investment accounts, work with the financial institutions to retitle accounts in the trust's name. For business interests, execute appropriate assignment or transfer documents. For personal property, execute a written assignment transferring ownership to the trust.
Some assets should not be transferred to your trust. Retirement accounts like 401(k)s and IRAs generally should not be retitled to a trust during your lifetime for tax reasons, though the trust can be named as beneficiary. Health savings accounts and medical savings accounts should not be transferred. Life insurance policies are typically kept in your individual name with beneficiaries designated, though the trust can be named as beneficiary if appropriate.
Review and update beneficiary designations on retirement accounts, life insurance policies, and other accounts with beneficiary options. Ensure these beneficiaries align with your overall estate plan. For many assets, beneficiary designations will determine who receives the asset regardless of what your will or trust says, so keeping beneficiaries current is critical.
Communication and Storage
Once your estate plan is complete, take steps to ensure it will be effective when needed. Discuss your plans with the individuals you have named in fiduciary roles to confirm they understand their responsibilities and are willing to serve. Share relevant information they will need, such as location of documents, account information, and contacts for attorneys and financial advisors. You need not share every detail of your estate plan, but fiduciaries should understand what they will be expected to do.
For guardians, have detailed conversations about your wishes for your children's upbringing. Share information about your children's routines, preferences, medical needs, and emotional needs. Consider providing a letter of intent with guidance about education, activities, discipline, and maintaining family connections.
Store your original estate planning documents in a safe, accessible location. Wherever you store originals, make sure trusted individuals know the location and how to access the documents. Keep copies of healthcare directives in an easily accessible location since these may be needed in emergencies when accessing your safe deposit box would delay care. Provide copies of appropriate documents to relevant individuals and create a document location list that identifies where your estate planning documents are stored, along with other important papers such as birth certificates, marriage certificates, property deeds, account statements, insurance policies, and tax returns. Share this list with your executor/trustee or trusted family members.