7 Estate Planning Best Practices
These tips can help you avoid common trouble spots and create a more effective estate plan.
An estate plan is one of the most important elements of your financial life, directing what happens with your wealth after you pass. Effectively, a good estate plan ensures that your legacy is left in the way you want it to be.
A complete estate plan includes several parts, including a will and potentially, a financial power of attorney, beneficiary designations, trusts and more. There can be a lot to it, which is why you should work with a trusted financial adviser and attorney.
Whether you're at the start of the estate-planning process or want to check your work, there is some general guidance. Create a more effective plan and avoid common mistakes by following these seven best practices.
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1. Have backups for different roles
Name a backup for such roles as executor of your will, financial power of attorney (POA) and healthcare agent. If one predeceases you, someone else can step up. If your primary selection is about your age, name a younger loved one as a backup.
Read more: Choosing a Trustee? These Six Tips Can Help You Pick Wisely
2. Communicate with your loved ones
They should know where to find your estate-planning documents. You should also discuss inheritance plans so people aren't surprised.
Read more: How to Organize Your Financial Paperwork for Your Heirs
3. Check your state's laws
Each state has its own laws for estate planning. If you move to a different state, you will likely need to update your documents to conform with that state's laws.
Read more: 17 States With Scary Estate and Inheritance Taxes
4. Remember your pets
If you have pets, you could lay out in your will who will take care of them after you die and leave them money to do so. You could also set up a pet trust designed to pay out enough money each year to cover your pet's bills.
Read more: Why Your Pet Should Be In Your Estate Plan
5. Share with healthcare providers
Proactively give healthcare providers your living will and healthcare POA, especially before major surgery. Most will ask for these documents as part of the admitting process.
Read more: Why You Need an Advance Directive
6. Put assets in a trust
If you set up a trust, retitle your assets so they're under the trust's name and tax ID. To manage both your estate plan and trust properly, make sure you're doing a proper accounting of all your assets, including everything from 401(k)s and investment accounts to valuable artwork and collectibles.
7. Review and update regularly
Review and update your estate planning documents every three to five years or after significant life events. Financial institutions will likely refuse a POA that's more than three years old because of concerns that your circumstances have changed.
These days, you can create your entire estate plan online with services such as Gentreo, LegalZoom, Wealth.com and Trust&Will. Once you sign up for an online account, the software walks you through a series of questions before creating your estate plan documents.
Using one of these services typically costs much less than hiring an estate attorney. For example, Gentreo charges $150 to generate the three primary documents: Will, living will and financial power of attorney. After that, it charges $50 a year to store your documents on the software with the option to update them later.
In comparison, a lawyer might charge from $1,000 to $3,000 to create your documents, then hundreds more later to revise them.
Online services can be convenient. You can handle everything from home at your own pace. "People sometimes get started on estate planning and want to learn more before making decisions. You aren't sitting in front of an attorney, feeling as though you need to figure it out on the spot," said Mary Kate D’Souza, chief legal officer at Gentreo. After you complete your plan, online services make it easy to share your documents with others electronically.
Generally, however, online options are most appropriate for those in a straightforward situation, such as a single adult with no children. If your circumstances are more complex, you'll benefit from the guidance and counseling of a lawyer, who can help you weigh your options and discuss possible issues.
Note: This item first appeared in Kiplinger Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
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