No matter your age or circumstances, getting your affairs in order is wise. Estate planning allows you to make decisions now that will ensure your wishes are honored when the time comes. Taking this task seriously also will benefit your loved ones, easing their responsibility to make decisions during difficult circumstances.
Whether you’re planning for your retirement or making end-of-life preparations, thoughtful estate planning is always a smart move.
Note that the following is not legal advice; we recommend you consult with a lawyer or financial advisor. However, this checklist can help you start the estate planning process.
1. Draft or Update Your Will
A last will and testament allows you to specify who your property will go to and how you would like your affairs to be handled. Keeping an updated will is a responsible decision at any age. Unfortunately, according to recent statistics, only 24% of all Americans have a will.
Writing your will can feel overwhelming, but remember that you decide what level of detail you would like to include. Even a will with only the most essential information is better than no will at all. Start by taking inventory of your most valuable possessions:
- Properties you own
- Vehicle(s)
- Furniture
- Jewelry
- Heirlooms
- Financial accounts
Consider who you would like to pass each of your possessions to, and select a person you trust to serve as the executor of your estate. This person will be responsible for carrying out your wishes as outlined in your will.
2. Establish a Durable Power of Attorney (POA)
From medical procedures to difficult health conditions, many of us will experience times when we need a loved one to act on our behalf. This is where a legal document known as a power of attorney (POA) comes in. What does a power of attorney do? By granting POA to a person you trust, you give that person legal permission to make legal and financial decisions in your stead.
A standard POA gives this permission only while you’re actively granting it, but a durable power of attorney (DPOA) allows your loved one to continue acting on your behalf when you’re incapacitated. For estate planning, granting a DPOA to a loved one can greatly simplify the process of decision-making when you’re no longer able to express your wishes.
You also can designate a DPOA, called a health care proxy, to allow a person to make medical decisions for you.
3. Create an Advance Health Care Directive
Also known as a living will, an advance health care directive is a legal document that outlines your wishes for medical care and life-saving measures in instances where you can’t express them yourself.
You can choose to keep the document brief, simply specifying whether you’re OK with emergency measures such as resuscitation and life support, or you can include a detailed list of medical treatments and the circumstances under which you would and would not want to receive them.
No matter your age, a medical crisis is always possible, so it’s wise to establish a living will. In difficult circumstances, this document can take pressure off your loved ones.
4. Set Up a Living Trust
If you’ve heard of passing down property through a living trust, you may wonder: What is a living trust versus a will? Even when you specify how you would like to distribute your assets in a will, the will must be validated through a lengthy legal process called probate. You can avoid this process through a revocable living trust.
A living trust allows you to transfer ownership of your assets into a trust during your lifetime and manage them as the trustee and beneficiary. You maintain full control while you're alive and competent, but if you become incapacitated or pass away, a successor trustee you appoint will step in to manage your assets. Though the trustee changes, the assets technically remain under the ownership of the trust. That’s why assets can be passed to your beneficiaries without going through probate.
Another key difference between a will and a revocable living trust is that a trust is a private document, whereas a will becomes public record once probate begins.
5. Review and Update Beneficiary Designations
As with a living trust, any accounts with named beneficiaries won’t need to go through probate. Documented beneficiaries also will override any conflicting information in your will, so it’s crucial that you verify all beneficiaries are up to date.
Ensure life insurance, retirement accounts, and bank accounts list the correct beneficiaries. When you experience a life change that may impact who you want to leave your assets to (e.g., divorce, birth, or a death in the family), take a moment to make any necessary updates to your beneficiary listings.
6. Understand the Tax Implications of Estate Planning
As with any financial planning, taxes are an important consideration in estate planning. When transferring assets, you should understand these forms of federal taxes:
- Gift tax: A gift tax applies to amounts you give over the annual exclusion amount. If you give gifts over this threshold, you must file a gift tax return, and your gifts will begin to count toward a lifetime exemption value (i.e., the total amount you are allowed to give away before incurring gift tax).
- Estate tax: Estate taxes are levied on the total value of a person's assets after death. For the vast majority of Americans, the federal gift tax and estate tax are a non-issue, as the combined tax exemption is quite high.
- Capital gains: The capital gains tax applies to the sale of investment assets (e.g., real estate or stocks). Assets you gift during your lifetime will retain their original cost, meaning the recipient will pay capital gains tax on the full appreciation if they sell. Assets that are inherited, however, receive a "step-up in basis" to the asset's current fair market value on the date of death, effectively eliminating any capital gains tax on appreciation that occurred up to that point.
Given the complexities of these taxes, it’s wise to consult with a financial advisor or Certified Public Accountant who understands senior and elder care tax strategies to help inform your financial strategy as you age.
7. Organize Important Documents
Taking time now to organize your documents can simplify things for your loved ones when you’re not there to guide them. Gather all your important physical records, such as:
- Bank and investment statements
- Insurance policies
- Property deeds
- Vehicle titles
Place these documents in a secure location, like a fireproof safe, and inform your executor and trusted family members.
You also should create a plan for sharing access to digital records and accounts. Create a confidential document listing usernames and passwords for all essential online accounts, including banking, investments, and email. You may want to print this document and then erase the file on your computer, storing a physical copy in a secure, accessible location.
Plan Confidently for the Future
Estate planning is an important responsibility, but planning for the future shouldn't just involve getting your affairs in order. You also should give time and thought to ensuring your well-being, quality of life, and financial stability throughout the remainder of your life. You may want to explore options such as long-term care insurance (LTCI) and continuing care at home (CCaH) to ensure future care needs are covered.
Proper planning can help you enjoy peace of mind and relieve the burden of complex decision-making and administrative hurdles from your family. Want to learn more about financial planning as you age? Read The Complete Guide to Senior Living Finances.
