An Estate Planning Checklist for Your Head and Heart

Your estate plan isn’t just about distributing your assets; it’s also about ensuring your loved ones are taken care of, your wishes are honored, and potential complications are avoided. In this comprehensive guide, I’ll walk you through an essential estate planning checklist to help you make informed decisions as you meet with your estate planning attorney.

Understanding Estate Planning

Estate planning is creating a clear and legally binding roadmap for managing and distributing your assets, including property, investments, and personal belongings, in the event of your death or incapacitation. It involves deciding how your assets should be distributed, who will manage your affairs, and how you want to be medically treated in case of incapacity. I recommend listening to this recording while on a walk, then printing and reviewing our estate planning checklist as a guide to help create an estate plan that’s right for you.

The Financial and Emotional Implications of Estate Planning

While I am not an estate planning attorney, the nature of my work with client families extends our conversations beyond planning and living for today into the future and the legacy that we’re all building every day. Some of the financial implications impacted by estate planning include:

• Life insurance coverage, reviews, and adjustments
• Tax planning
• Asset protection
• Transfer of ownership
• Assessing the impact on retirement plans and preparations
• IRS rules regarding gifting and estate taxes
• Exploring vehicles for giving, such as donor-advised funds, foundations, trusts, etc.; and,
• Asset allocation and investment strategies

While financial planning can be a useful piece of quantitative data to take into creating your estate plan, I’m fond of reminding folks that financial planning, at its best, considers both the technical and the emotional aspects of life. I highly recommend completing this exercise, Defining True Wealth, as a starting place for considering what type of estate plan will support your unique definition of success.

General Issues to Address as You Review this Estate Planning Checklist

I will now walk through considerations to mull over before you meet with your estate planning attorney, including general issues, asset-related concerns, and probate/transfer considerations. Let’s start with general issues.

1. Distribution of Assets

How do you want your assets to be distributed to your heirs at your death? Do you need to review what you have in place currently? A last will and testament can help clarify how your assets will be distributed, but it won’t avoid probate. More on that to come.

2. Care for Minor Children

Do you have minor children that will need a caregiver should you pass before they are adults? I know as a mom of a young child, this can be hard to consider, but it is very important. If you have minor children, too, you’ll want to consider appointing a legal and financial guardian(s) in your will. You know better than anyone how much time, energy, and expense goes into raising a child. Be mindful of ways you can compensate this person in this important role.

3. Financial Concerns Regarding Heirs

Do you have any financial concerns regarding your heirs that you want to address in your estate plan? Nearly every client family I work with has at least one heir they’re concerned about; this might be due to fiscal irresponsibility, divorce, special needs, or addiction. If that describes you, consider ways to mitigate risks related to these concerns. Common solutions include providing explicit distribution instructions and, in some cases, establishing trust provisions.

4. Contingency Planning

Say your estate names your two adult children as beneficiaries, Joey and Jane. What would happen if Jane were to predecease you? Do you have a plan to address how her share of the estate should be distributed? Some would choose to have all assets go to Joey. Others might prefer that Jane’s children inherit her share. This describes the difference between a per capita (e.g., shares to Joey) or per stirpes (e.g., shares to Jane’s children) provision. This can be included in wills, trusts, and beneficiary designations.

5. Gifting Now

Are you making (or do you wish to make) gifts to your heirs while you are around to see the impact? If so, consider if this gifting during life might change how much you want to leave to these individuals at your passing.

6. Medical Preferences

Do you have specific medical preferences that you wish to implement should you become incapacitated? If so, consider establishing a living will that spells out how you want to be medically treated during your incapacitation. Common instructions include details regarding resuscitation, breathing/feeding tubes, life support, etc. Even if you don’t have specific preferences, this form can be incredibly helpful to those making decisions on your behalf during a difficult time.

7. Decision-Making Powers

Who would you like to make decisions for you during those difficult times of medical or financial incapacitation? A durable medical and financial power of attorney appoints someone to make important decisions for you in these situations. They can be two different individuals if that fits your needs best.

8. Set/Review Appointees

Who are the individuals you’d like to set for these important roles (executor, power of attorney, guardian, trustee, trust company, etc.)? If you already have an estate plan, are the individuals named still appropriate for your situation? Often, this can be a family member, friend, or professional third party. In any case, I highly recommend you talk with the people you’ve appointed about the role and assess/reassess their ability to play that role. Some of my client families are reluctant to ask a family member or friend. That’s where professional trustees/administrators can be a good fit.

9. Contingency Appointments

Should circumstances change (e.g., death of an appointee, change in relationships, etc.), do you need to plan for any contingency persons to appoint in your estate plan? Often, trusts have a successor listed as part of their framework, but that’s not the default for all documents.

10. Final Expenses

Do you need to have a plan to cover any final expenses at your passing? This can include unpaid debts or bills, funeral expenses, or legal fees. If so, you may want to consider setting aside funds (often through a life insurance policy or separate savings account) for this purpose.

Asset-Related Considerations of Your Estate Planning Checklist

1. Illiquid Assets

Is much of your net worth tied to illiquid assets, meaning homes, land, or otherwise not-quickly-accessible? If so, consider how this may impact your heirs’ ability to pay any final expenses, as mentioned previously. This also impacts the ability, options, and timeframe for dividing and distributing assets. This could cause issues if you have heirs who don’t get along. Consider setting aside additional cash resources to mitigate these risks if you have a highly illiquid estate.

2. Varying Investment Holdings

Do some of the assets you plan to bequeath have varying investment allocations or holdings? If so, consider ways to split these assets among your heirs appropriately. As an example, if you have a brokerage account invested in all Apple stock that you leave to Joey, and a separate account invested in a diversified portfolio that you leave to Jane, market volatility is likely to impact Joey’s inheritance (for better or worse) making for a more uneven inheritance than you may have intended.

3. After-Tax Inheritance

Do you need to review ways to ensure your heirs aren’t left with unequal “after-tax” amounts from their inheritance? Life insurance proceeds are tax-free. Traditional IRAs are taxed as ordinary income and will require liquidation within ten years by the next generation of heirs (in most cases). Brokerage accounts receive a step-up in cost basis at your passing, and gains are then taxed at capital gains rates. Consider whether the proportions of each type of asset in your estate will be appropriately split among your heirs.

4. Digital Assets

Do you have any digital assets that you need to include in your estate plan? This might be your online banking information, cloud storage, emails, logins, or digital storefronts. If so, consider using a secure password manager as a centralized hub for all of your digital assets. 1Password, Keeper Security, and LastPass are popular. Ensure your wishes regarding digital assets are clearly stated within your estate documents.

5. Personal Assets

Do you have any personal assets that you need to include in your estate plan? This can include jewelry, vehicles, or heirlooms. If so, consider preparing a letter of instruction with your estate planning documents or making other arrangements with your heirs to govern the distribution of these assets.

6. Jointly Owned Assets

Do you have any assets or accounts that are jointly owned? If so, consider whether the titling is appropriate for you and your joint owner. Common titling can include Joint Tenants with Rights of Survivorship (JTWROS), Tenants in Common (TIC), and Tenants by Entirety (TBE). Remember joint ownership’s potential ramifications on your estate plan and ensure the titling compliments your estate documents.

7. Avoiding Probate

Nearly all of the clients I work with want to avoid probate. It’s time-consuming, public, and expensive. There are several ways to ensure your estate stays out of probate:

• A payable on death (POD) or transfer on death (TOD) account may be considered for any bank or investment accounts you own.
• You may name beneficiaries (and contingent beneficiaries) for any qualified investments (e.g., IRA, 401(k), etc.) or insurance products (e.g., annuities, life insurance, etc.) that you may have. Note that naming your “estate” as the beneficiary will cause your assets to go through probate and, in many cases, cause unfavorable tax consequences.
• Depending on your state, you may use a beneficiary deed or TOD affidavit for any real estate assets you own.
• If you wish to both avoid probate and have greater control over the distribution of assets to your heirs, establishing and “funding” a revocable living trust may be appropriate. This can be useful if you want to direct the timing of distributions, specific amounts, and limitations to when/how your estate is disbursed. A pour-over will (i.e., “pour” assets back into your trust) may be used to catch any assets missed by the trust, but be mindful that such assets will not avoid probate. Talking to your estate planning attorney will help you understand whether a living trust might be right for you, and your financial advisor can help ensure that trust is funded properly.

Probate & Transfer Considerations of Your Estate Planning Checklist

1. Leaving to Charity

Are you interested in leaving a portion of your estate to charity? If so, consider whether pledging tax-inefficient assets, like traditional IRAs, to charity would be optimal for your estate planning outcomes. A charitable remainder trust (CRT) may also be considered depending on your specific intentions. This investment provides you with an upfront tax deduction, income for life from the trust, and, as the name implies, the remainder funds your charity of choice at your passing.

2. Estate Tax Liability

Are you concerned about a federal/state estate tax liability? If so, consider ways to “freeze” or remove certain assets from your estate using an irrevocable trust. Strategies can include an Irrevocable Life Insurance Trust (ILIT), a Qualified Personal Residence Trust (QPRT), bypass trust planning, and Deceased Spouse Unused Election (DSUE) portability. In Oregon, we have an estate tax that kicks in over $1 million in assets; however, each individual receives a $1 million estate tax exemption ($2 million for a married couple filing jointly). This means you will only pay Oregon estate taxes on amounts over $1 million. (At the federal level, estate taxes kick in after $12.92 million.) Implementing gifting strategies (e.g., utilizing the annual exclusion for gifts, unlimited gifting exclusion for education/medical expenses, etc.) may also be considered.

3. Special Needs Heirs

Do you have any heirs who have special needs? If so, consider how much their inclusion in your estate plan may affect any public assistance they receive for their disability. Determine whether a special needs trust (SNT) may be appropriate for their situation.

4. State-Specific Issues

Do you need to review any state-specific issues (e.g., inheritance tax, TOD/POD restrictions, community property, probate laws, etc.) that may affect your estate planning wishes?

Conclusion

Estate planning is a complex but crucial process that requires careful consideration of various factors. This estate planning checklist is a comprehensive guide to help you navigate the important decisions in creating your estate plan. Remember that, like financial planning, estate planning is not a one-time task; it should be reviewed and updated regularly to ensure it aligns with your changing circumstances and wishes. Consulting with a qualified estate planning attorney can provide valuable insights and guidance as you secure your legacy and ensure your loved ones are well cared for.

Resources

• Family Wealth: Keeping It in the Family–How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, James E. Hughes Jr., Esq. (2004)
• The Wealth of Your Life: A Step-by-Step Guide for Creating Your Ethical Will, Susan Turnbull (2017)
• Beyond the Grave, Revised and Updated Edition: The Right Way and the Wrong Way of Leaving Money to Your Children (And Others), Gerald M. Condon, Esq., and Jeffrey L. Condon, Esq. (2014)
• Get It Together: Organize Your Records So Your Family Won’t Have To, Melanie Cullen, MBA, and Shae Irving, JD (2018)
• The Cycle of the Gift: Family Wealth and Wisdom, James E. Hughes Jr., Esq., Susan Massenzio, PhD, and Keith Whitaker, PhD (2013)
• The Great Inheritance: 7 Steps to Leaving Behind More Than Your Money, Justin M. Biance, CEP
• Nolo.com, a resource for legal matters, including wills, trusts and probate (note, I do not recommend drafting your own estate documents; use Nolo as a starting spot for education and data gathering, not the final stop)

FAQs About Estate Planning

1. What exactly does estate planning entail, and why should I consider it?

Estate planning is the process of creating a comprehensive plan for managing and distributing your assets upon your death or in the event of your incapacity. It’s crucial because it lets you specify your wishes, ensure your loved ones are provided for, and avoid potential legal complications.

2. What are the key documents I need for my estate plan?

Essential estate planning documents include a last will and testament, a living will, durable power of attorney for financial and medical matters, and, if needed, trusts. These documents outline your wishes for asset distribution, medical treatment, and decision-making in case of incapacity.

3. Do I need estate planning if I don’t have substantial wealth or assets?

Estate planning is not exclusive to the wealthy. Regardless of your net worth, having an estate plan is important to ensure your assets are distributed as desired and to make important decisions regarding your health and finances if you become incapacitated.

4. How frequently should I revisit and update my estate plan?

It’s advisable to review and update your estate plan whenever significant life events occur, such as marriage, divorce, the birth of children or grandchildren, or changes in financial circumstances. Regular reviews, typically every three to five years, are also recommended to keep your plan current.

5. Can estate planning strategies help minimize tax liabilities for my heirs?

Yes, estate planning can include strategies to reduce potential estate taxes. Techniques such as gifting, creating trusts, and utilizing tax-efficient asset transfers can help minimize the tax burden on your heirs, ensuring they receive a larger share of your assets.