How to Create an Estate Plan
You understand the importance of estate planning, now start the process with these tips to secure final wishes for family and distribute your estate properly.
Name an Executor
After your passing, you’ll want to have somebody in place who can execute your wishes. This person is aptly named an executor.
Many people choose a spouse, sibling, child or close friend as executor. In most cases, the job is fairly straightforward. Still, you might give special consideration to someone who is well organized and capable of handling financial matters. Someone who is respected by your heirs and a good communicator also may help make the process run smoothly.
Above all, an executor should be someone trustworthy, since this person will have a legal responsibility to manage your money, pay your debts (including taxes) and distribute your assets to your beneficiaries as stated in your will.
If your estate is large or you anticipate a significant amount of court time for your executor, you might think of naming a bank, lawyer or financial professional. These individuals will typically charge a fee, which would be paid by the estate. In some families, singling out one child or sibling as executor could be construed as favoritism, so naming an outside party may be a good alternative.
Understand Estate Taxes
Tax planning should be an integral part of your estate planning strategy. You’ll want to work with a tax professional who can help you navigate state inheritance laws and federal estate taxes. The 2017 Tax Cuts and Jobs Act raised the federal estate tax significantly, making it easier for families to maintain their estate when transferring to loved ones. Estates with combined gross assets under $11,700,000 (for individuals) are not required to file an estate tax return.1
Prepare Your Health Care Documents
Healthcare documents spell out your wishes for health care if you become unable to make medical decisions for yourself. They also authorize a person to make decisions on your behalf if that should prove necessary.
These documents may include:
- Living will
- Power of attorney agreement
- Durable power of attorney agreement for healthcare
Assess Your Life Insurance Policy
When was the last time you assessed your life insurance coverage? Have you compared the life insurance benefit with your financial obligations? Keep in mind that several factors will affect the cost and availability of life insurance including age, health and the type and amount of insurance purchased.
Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Write a Letter of Intent
A letter of intent is a non-legal document that outlines your wishes. A strong, well-written letter may save your heirs time, effort and expense as they administer your estate. It acts as a message from the deceased and can include an array of information from providing organization and outlining last wishes, to detailing information and sending personal messages. Consider including instructions for your funeral arrangements and other details that are important to you.
Organize Your Documents
After your passing, you’ll want your heirs and executor to be able to easily obtain and access important documents.
These documents may include:
- Your will
- Trust documents
- Life insurance policies
- Deeds to any real estate, and certificates for stocks, bonds, annuities
- Information on your financial accounts and safe deposit boxes
- Information on your retirement plans
- Information on any debts you have: credit cards, mortgages and loans
Talk to Your Family
Do you have stepchildren and ex-spouses? Have you been caring for any foster children? Have you been caring for a grandchild, niece or nephew? With help from one of our financial planners at California Retirement Advisors as well as an attorney, you can structure a will or trust that accounts for everyone you wish to provide for. The clearer and more specific you can be the better, as you will reduce the amount of confusion among your family. Otherwise, everyone who thinks they deserve something from your estate may try to extract it in probate.
There are many factors to consider when creating a will or trust. Before diving into the estate planning process, consider consulting with one of our seasoned financial professionals as well as an estate planning lawyer. We will make sure you’ve covered all the bases when working to plan for your passing.
By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors
For more information on estate planning, check out these other articles:
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.