Three Essential Estate Planning Steps to Protect Your Nest Egg

Estate planning isn’t just for older adults or affluent retirees. It’s a crucial step for anyone seeking to maintain control over how their assets will pass to the next generation in the most tax-efficient way possible.

A comprehensive estate plan empowers you to shape the distribution of your assets according to your wishes and minimize taxes for your loved ones.

1. Make a plan for your assets

Through estate planning, you can ensure that your assets will pass in the way you intend, minimize taxes and take care of the next generation. Depending on your goals, several tools can help you do that.

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Protect your loved ones

For starters, you need to name beneficiaries on all your bank, brokerage and insurance accounts. These are the people who’ll inherit the account when you die. Even if you die without a will, accounts with named beneficiaries will go directly to the people named.

Consider life insurance, too. For people with young families, life insurance is essential. It can allow your family to maintain their standard of living if you die.

Life insurance is also a helpful estate planning tool, too later in life. It can be used to be help your loved ones with:

• Final expenses
• Estate taxes
• Business buyout

Likewise, disability insurance can be a useful tool for replacing your income if you’re unable to work due to an illness or accident. Forty-three percent of 40-year-olds are likely to suffer a long-term disability by the time they reach 65.

Disability insurance can help you maintain your financial stability and ensure that your estate planning goals won’t get upended by unforeseen circumstances.

Do you need a trust?

Trusts allow you to maintain control of your assets while you’re alive and then transfer them to beneficiaries directly after you die — without the review of a probate court.

With a trust, you name a person (the trustee) to manage the assets in the trust for the benefit of the people you name. And you can direct under what circumstances those assets will pass.

Trusts come in many varieties, but one of the simplest is a revocable trust. You can serve as the trustee and make changes while you’re alive.

It’s important to consult with your wealth adviser to understand how to integrate a trust effectively into your overall estate plan.

Update your plan regularly

Estate planning isn’t a set-it-and-forget proposition. Life is unpredictable, and circumstances change. Updating your estate plan regularly will help ensure a seamless transition for your beneficiaries.

These are some scenarios that might necessitate an estate planning review:

• Getting married
• Having a child
• Getting a divorce
• Death of a spouse

2. Prepare key records

Estate planning is all about dictating how you want to protect yourself and provide for your family. To do that, you’ll need to prepare several legally binding documents, usually by working with an estate planning attorney, such as:

• Standard will. A basic estate planning document that spells out how you want your property to be distributed when you die. If you die without a will, a court will decide what to do with your assets, and that may not be in line with your wishes.
• Power of attorney. Lets you name a person you trust to act on your behalf for financial and legal matters. If you become incapacitated, this person can step in and take care of your finances.
• Living will. Allows you to express end-of-life wishes and acts as a guide for your loved ones if you become incapacitated and unable to communicate those wishes yourself.
• Health care proxy. A document that lets you name a person you trust to make medical decisions on your behalf if you’re unable to make them yourself.

3. Minimize inheritance tax liabilities

Estate planning helps you preserve the value of your assets for your beneficiaries. One significant aspect of this is minimizing the tax burden they might face. There are several strategies that can help you do that, including:

• Tax-free gifts. One way to reduce the size of your estate — and thus potentially lowering estate taxes — is by gifting during your lifetime. The IRS allows individuals to gift a certain amount each year without incurring a gift tax (in 2025, that’s $19,000 per recipient for an individual and $38,000 for a married couple). By taking advantage of this annual exclusion, you can gradually transfer wealth to your loved ones tax-free.
• Trusts. Some trusts, such as irrevocable life insurance trusts (ILITs) and charitable remainder trusts (CRTs), can offer tax benefits. ILITs, for example, remove life insurance proceeds from your taxable estate so it can’t be taxed. CRTs, meanwhile, provide income tax deductions for charitable contributions.
• Roth conversions. Converting traditional retirement accounts to a Roth can help you reduce future tax liabilities for both you and your beneficiaries. The reason? Withdrawals from Roths are tax-free, but withdrawals from traditional retirement accounts are taxed as ordinary income. While a conversion may trigger income taxes in the short run, the tax-free growth and withdrawals can be significantly greater in the future to more than offset the taxes.
• Charitable giving. Charitable donations can serve dual purposes in estate planning by supporting causes you care about while also reducing estate taxes. By leaving assets to qualified charitable organizations, you may be able to get estate tax deductions, ultimately lowering the taxable value of your estate.

Tax planning can be complex and should be done in consultation with a qualified tax professional or estate planning attorney to ensure compliance with current laws and regulations.

Related Content

• Ten Common Estate Planning Mistakes
• Are You an Estate Planning Procrastinator? Where to Start
• Six Benefits of Setting Up a Trust for Your Assets
• What Assets Should You Put (or Not Put) in Your Trust?
• Eight Types of Trusts for Owners of High-Net-Worth Estates