First Steps In Creating An Estate Plan

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The first step of estate planning is to make a list of all your assets and get a general idea of how much they are worth. While valuation is straightforward for most assets, it can be difficult with some assets, such as jewelry, real estate, art and copyrights. When you have little or no idea what something is worth, it may be advisable to consult a professional appraiser.


The second step is to identify the beneficiaries of your estate and what property or shares you would like each of them to receive. You need to determine who will be your medical and financial powers of attorney should you become incapacitated and after you die. Think about who you trust to be your loved ones’ go-to person should problems arise. The decision is based on whom you want to make medical decisions on your behalf and handling your affairs (note: these may be two different people). The nature of your relationship to the beneficiaries and their needs will probably inform these decisions. This is also a good time to consider whether you are able and willing to make lifetime gifts to anyone.
After determining how you would like to leave your property, the third step is to understand the tax consequences of your proposed dispositions. Most estates — more than 99.7% — won’t owe federal estate taxes. For deaths in 2013, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.25 million. Married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen). The basic question is: Will transfer taxes apply to my dispositions, and, if so, are there ways to reduce the taxes by altering the original plan? If the taxes can be reduced through planning, you must then balance your original wishes against the tax consequences. Generally, this is the step where consultation with a qualified professional may earn the greatest rewards.
Once you chose your estate plan, it is time to prepare and execute the relevant documents to implement your plan. Again, a qualified professional may be necessary to assist you here. These documents will normally include a Will (link to Will Writing eBook), and may also include a revocable trust (sometimes called a “living” trust). In preparing these documents, you will need to choose your executors (link to Executor eBook), (or “personal representatives” as they are called in some states) and, if necessary, trustees and guardians.
In addition, your estate plan may include a health care proxy (link to AHD eBook), – by which you appoint an agent to make medical decisions on your behalf in the event you are not able to make such decisions yourself – and/or a living will, which is a personal expression of the medical treatment you do or do not want in the event you are terminally ill. You may also wish to create a power of attorney (link to Probate eBook), by which you appoint an individual as your agent to handle your financial affairs on your behalf. Depending on your family situation and assets, you may also consider creating a life insurance (link to Life Insurance eBook), trust which would hold insurance on your life and/or investing in a qualified tuition program (often called a “529 plan”) that allows you to provide for qualified higher education expenses of a designated beneficiary.

Writing Your Will

In your will, it is very important to state who you want to inherit your property, name a guardian to care for your young children and create trusts for minor children should something happen to you and the other parent. You will also have to include your wishes regarding your assets and how you want them split among loved ones, charities, etc.
Create a living will that clearly indicates your end-of-life healthcare preferences. Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration (“living will”) and a power of attorney for health care, which gives someone you choose the power to make decisions if you can’t. (In some states, these documents are combined into one, called an advance health care directive (Link to AHD eBook). Find the one in your state using our comprehensive guides:

Decide if there are other estate planning goals you would like to pursue, such as, creating a trust for the education of your grandchildren or providing for physically or mentally challenged loved ones. And remember, the goal is to take a burden off your shoulders and the shoulders of your loved ones. With an estate plan, you can ensure your medical and financial wishes will be honored when the time comes.
Your attorney-in-fact and/or your executor (link to What is an executor blog post) (the person you choose in your will to administer your property after you die) may need access to the following documents:

  • will
  • trusts
  • insurance policies
  • real estate deeds
  • certificates for stocks, bonds, annuities
  • information on bank accounts, mutual funds, and safe deposit boxes
  • information on retirement plans, 401(k) accounts, or IRAs
  • information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
  • information on Totten trusts or funeral prepayment plans, and any final arrangements instructions you have made.

An estate plan is generally not written “in stone.” Your Will in particular, and also revocable trust agreements, can and should be changed anytime that you have a change in heart or there has been a change in circumstances (i.e., marriage, birth of a child, divorce, etc.). Bear in mind, however, that some aspects of your estate plan, such as lifetime transfers, may be irrevocable once made. In addition, if you were to become mentally incompetent, you would not be able to change your estate plan. Therefore, you should revisit your estate plan every few years to make sure that the plan is consistent with your wishes.

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