Many people fail to create an estate plan because they don’t truly understand what is involved and therefore believe it is too complicated. But the real truth is that creating an estate plan during your lifetime is far less complicated than what your family will deal with after you are gone, if you don’t:
01 | CREATE A TRUST
When most people think of preparing for the end of life, they think of writing a Will, but having a Will without a Trust is the fast track to put your family in the Courthouse after you are gone. Instead, to keep your family out of Court, you’ll want to set up a Trust and title all of your assets to be owned by that Trust. While it might feel like a lot of effort, it will save your family a LOT of trouble after you are gone.
02 | DESIGNATE BENEFICIARIES
Designating beneficiaries for your retirement accounts and insurance policies is critical because these assets do not pass through your Will or Trust. Filling out beneficiary designation forms for each of your accounts will ensure these assets pass to the people you want to have them and stay out of the Court system. Be sure to review your beneficiary designations periodically to be sure they align with your current circumstances. Hot tip: never name minor children as beneficiaries of your retirement account or life insurance policies.
03 | AVOID ESTATE TAXES
Most of us will not have to worry about estate taxes since the federal estate and gift tax exemption is $12.06 million ($24.12 million for married couples) in 2022 and indexed every year for inflation. Even when the current exemption amount sunsets in 2025, the expected exemption amount will be around $6M in 2026. However, if you are married and wish to take advantage of portability — where spouses are entitled to each other’s unused exemption — the surviving spouse must file the required paperwork to claim the exemption.
In addition, 12 states and the District of Columbia have state estate taxes, and 6 have inheritance taxes (Maryland has both estate and inheritance taxes!), so you could still owe taxes even if your estate is too small to owe federal tax. The big key here is to not just leave a set of documents that your family will have to figure out after you are gone, but to give them the gift of thoughtful, advanced planning that will work when it's needed.
04 | LEAVE A LETTER OF INSTRUCTION
Not everything you may wish to pass on to your heirs — like instructions for your funeral — should be put in your will or Trust. Leaving a letter of instruction with your family or attorney can ensure your final wishes are respected. And take it one step further with a Family Wealth Legacy Interview during which you record your values, insights, stories and experiences for your loved ones to refer back to for generations to come. I provide this service at no additional charge for my clients because I know this is one of the things families value the most and is least often handled.
05 | SIGN A DURABLE POWER OF ATTORNEY
Estate planning is not just about death, but also about ensuring your family can handle your affairs in the event you become incapacitated. Signing a durable power of attorney that designates someone to handle your financial affairs will save time, money and hassle for your family who, without it, would have to go to court to have a guardian appointed to manage your life. This could cost tens of thousands of dollars and is easily handled with one simple document and a trusted advisor for your family to turn to in a time of need.
06 | CREATE AN ADVANCE HEALTH CARE DIRECTIVE (ALSO KNOWN AS A LIVING WILL) & A MEDICAL POWER OF ATTORNEY
These documents designate a decision maker of your choosing to make sure your wishes are followed when it comes to the medical care you want — or do not want — to receive when you are incapacitated or near death. You will also need to sign a HIPAA release form so your medical records can be released to your health care agent and medical professionals can discuss your medical care with that person, or others among your family and loved ones.
07 | ORGANIZE YOUR PAPERWORK AND DIGITAL FILES
Since many of us live our lives online these days, make sure your personal representative has access to all your digital information, including website addresses and the log-in information for those sites. Put all of your important paperwork — deeds, insurance policies, bank and brokerage statements, etc. — in one file and let your family (or designated personal representative (often called an executor in other states) know where it is.
Bonus tip: If you have minor children at home (or adult children with special needs), don’t rely on naming guardians in your Will alone. Create a comprehensive Kids Protection Plan® to ensure your children’s care is covered not just for the long-term, but for the immediate term as well.
This article is a service of Jeni Snider, Personal Family Lawyer®. I do not just draft documents; I ensure you make informed and empowered decisions about life and death for you and the people you love. That's why I offer a Life & Legacy Planning Session, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.