10 Crucial Steps in Estate Planning

1. Select a Professional

When deciding to establish your Estate Plan, it is always best to consult professionals. From attorneys and financial planners to Certified Public Accountants, professionals are knowledgeable of the steps that should be taken for your plan to be executed successfully when the time comes.

2. Create a Will

A will provides the opportunity to select a guardian for minors or dependents, as well as an executor for your estate. The executor gathers and disburses the assets of an estate, as well as oversee that all of the related tax issues are properly handled. Your executor can be a professional, a family member, or a friend.

3. Update Beneficiary Designations

Beneficiary designations should always be up to date, especially after major life events such as births, marriages, and divorces. Allowing beneficiary designations like Retirement Accounts or Insurance Policies to become outdated or incorrect, could cause your assets to pass on to people you did not intend to benefit.

4. Establish Health Care Directives

It is of utmost importance to have a written document establishing whether or not you wish to receive life-sustaining medical treatment in the event you should become incapacitated or terminally ill. You should also document who you would like to serve as a healthcare proxy – a person who is authorized to make medical decisions for you if you were to become incapacitated.

The Health Insurance Portability and Accountability Act (HIPAA) restricts your physician’s ability to disclose your medical information. Be sure to include HIPAA release language in your disability planning documents.

5. Consider Power of Attorney (POA)

Discuss with your estate planning professional about creating a durable Power of Attorney that authorizes someone you trust to handle financial matters if you become incapacitated. Be sure to have your documents reviewed periodically to ensure they are up to date and comply with current laws.

6. Establish a Trust

One of the main purposes of a trust is to avoid probate, which may mean your estate can be settled faster and at a lower cost. Trusts are private, whereas probate is a matter of public record. You should contact an estate planning professional to determine which trust is right for you and your specific needs.

7. Plan For the Distribution of Your Retirement Assets

If you are participating in an employer-sponsored retirement plan from which you are eligible to receive benefits, be sure to keep plan administrators advised of your current address and keep your beneficiary designations up to date. Make your beneficiaries aware of any plans from which you may have benefits coming.

Additionally, you can ask your financial advisor or estate planning professional whether it makes sense for you to consolidate your retirement assets by rolling them over to an Individual Retirement Account. Your advisor can assist in determining if a rollover is appropriate for you.

8. The Use of Gifting Strategies Can Reduce Estate Tax Liabilities

A great way of reducing the size of taxable income of your estate is by gifting. The 529 College Plan is a common source for gifting. In this plan, assets potentially grow tax deferred and can be withdrawn free of taxation on the Federal level, if used for qualified higher education expenses.

Charitable donations are another form of gifting. Any assets donated can reduce the overall value of the taxable estate and are often income tax deductible.

9. Decrease or Eliminate Estate Taxes

Property passing to surviving spouse is generally exempt from estate taxes. As of 2018, there’s a $11.2 million to a decedent’s non-spousal heirs estate tax free. Consult with your estate planning professional for ways to structure your bequests to take advantage of the exclusion and minimize estate taxes.

10. Determine How to Draw Down Your Assets

It is crucial to consider what sources of cash are being used to maintain your lifestyle during retirement. These sources often have very different tax consequences. Discuss with your financial advisor the best way to draw from your tax-deferred, taxable or tax-free assets for cash flow needs, to ensure minimization of your own taxes and the taxes to be paid to your heirs.