The Three Basic Components of a Good Estate Plan

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published 24 February 2024

We spend most of our lives planning for the future, and it starts from a very young age. You probably remember being asked what you wanted to be when you grew up. And despite how many times that answer might have changed, you most likely spent the first 20 years of your life planning, preparing and working for that dream job. But what happens when it’s time to retire? That’s a question we don’t focus on nearly as much.

If you’ve been in the workforce, you know how important it is to put money away for retirement. Almost all financial advisers will tell you to start investing, whether that be through an employer-sponsored 401(k) account or a Roth IRA.

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A more advanced way to plan your estate is by setting up a trust. Trusts are like magic vaults that hold your assets, allowing you to control how they are distributed. Setting up trusts can help minimize estate taxes and provide for specific needs, like education or health care expenses for your loved ones. A great trust can minimize taxes, reduce stress when a loved one passes away and expedite asset transfers while potentially avoiding probate.

Another option you have is to put money in accounts that come with tax benefits. Retirement accounts, like IRAs and 401(k)s allow your money to grow tax-deferred. This means you don’t pay taxes on the gains until you withdraw your funds. Tax-free accounts like Roth IRAs allow your money to grow tax-deferred but offer tax-free distributions as long as all of the rules, such as allowing the account to age for five years and waiting until at least age 59½ to make withdrawals, are followed.

Be sure to hire a skilled estate attorney to draft and review your documents. Once you pass away, you’ll need someone representing your wishes and making sure everything gets done according to your plan. Hostetler Brown asserts, “Discount estate planners or online ‘lawyer-assisted’ document-generating websites usually do not address all of the issues that may come up. If you don't know what could go wrong or what you are leaving out, how can you fix it?”

As you continue planning your estate, you want to make sure your assets are passed on to your heirs as efficiently as possible. You’ll first want to start by designating beneficiaries on all of your accounts and insurance policies. Naming beneficiaries ensures your assets go directly to the people you choose, allowing your loved ones to skip the lengthy, and sometimes costly, probate process. If done correctly, the entire process can be kept private instead of the information being advertised to the public.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

JB Beckett has been an adviser for 24 years and is the founder of Beckett Financial Group, a specialized financial firm that helps individuals and businesses in the Retirement Red Zone build Tax-smart Retirement Income Blueprints allowing them the freedom to overcome their concerns about inflation, market volatility and taxes to retire sooner.