It’s Estate Planning Week: Here’s How to Get Started

An older woman sits at a dining room table with another woman in a suit, going over paperwork.

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published 16 October 2023

Since Oct. 16-22 is Estate Planning Week, let’s take this opportunity for a refresher on everything you need to know about how estate planning works.

In short, the process of estate planning involves determining and putting into place instructions for what happens to your possessions when you pass away and which of your trusted contacts may be tapped to watch over those assets when you are no longer here to do so.

But there are many common misconceptions about estate planning, ranging from being too young or not having enough assets to make estate planning worthwhile. In this article, I hope to set the record straight about estate planning so you can prepare for your future and generations to come.

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Take stock of your goals

An estate plan can be as simple or as complicated as you want it to be. For some of us, an estate plan may require only a simple will in place to describe how your assets are divided at death. For people out there with lots of assets and complex goals, you might need a trust in place to administer your assets after death or even a combination of different trusts to accomplish those goals.

For example, if you wanted to leave money aside for your grandkids, but didn’t want them to gain access to it until they reach a certain age, a specific trust for each beneficiary might be needed with descriptive language to explain what triggers (i.e., age) are required before assets pass to the grandkid free and clear.

For a husband and wife, an estate plan typically will leave the assets to the spouse that outlives the other and then. at the second spouse’s passing, follows more complicated instructions as to whom receives the assets. If you don’t have children or family to inherit assets, or simply don’t wish them to receive all your assets, you can also designate a charity or handful of charities to receive gifts of cash or other assets at your passing.

These instructions need to be laid out in specific language — for example, “$25,000 to be gifted to Mile High United Way.” This ensures that the instructions are followed and aren’t subject to being challenged as invalid by a family member.

It does not happen frequently, but family members might contest an estate plan if they feel left out, so that is an important reason to make sure your instructions are drafted accurately using the right estate planning instrument.

Do an inventory of assets and liabilities

Part of the process of putting together an estate plan is creating an up-to-date balance sheet for your family. After all, there is no point in detailing specific gifts or earmarks if the assets don’t exist to back them up.

You do have to make some assumptions about your estate and how assets will grow or decline over time. If you have $1 million in assets when you create your estate plan, how much is left over for heirs is going to depend on whether or not you spend those assets before you pass or grow them aggressively through investing or saving.

If you have any significant liabilities, keep in mind that those may need to be paid off when you pass, and other assets may have to be utilized to make good on those debts.

You may also want to include language in the estate plan to describe assets you may acquire in the future (boats, vehicles, etc.) and how they should be disposed of.

Who are your trusted successors?

If you choose to create a trust, you will be required to establish trustees to manage the assets and also ideally name successor trustees who can take over in the event the original trustees are incapacitated or unable to serve for any reason. It is prudent to have discussions with those you will want to serve as successors or co-trustees to make sure they’re willing to take on the responsibility, as ultimately the trustee has discretion on the assets and is able to make important financial decisions.

The trustee interprets the wishes of the person creating the trust, so if you want them to follow the spirit of it as much as possible, it’s important to name someone you trust and who intends to fulfill the role faithfully.

If you are looking to create a will-based estate plan instead, you will need to name an executor to oversee the closing of the estate, and similarly, it should be someone you trust who will carry out the closure of the estate accurately.

If you fail to name an executor in your will, a court may appoint a representative on its own.

Who do you need to work with?

While it is possible to write a simple will on your own, if you want your estate plan to be rock-solid and give you peace of mind, it’s best to work with a professional to get it drafted. A simple will can be done inexpensively through online service LegalZoom or a similar service, but any scenario requiring a little additional complexity might be best handled by an estate planning attorney.

For estate plans that are going to involve multiple trusts, or involve amounts of money that exceed estate tax exemption amounts, an estate planning attorney is going to be able to provide the best advice.

An estate planning attorney will also be familiar with any state-specific estate tax issues that are applicable in addition to federal estate tax issues.

While working on your estate plan, it would also be advisable to include your financial adviser and tax adviser in discussions to make sure your team is coordinating all their efforts correctly.

In cases where life insurance will be used, it might also require including your insurance agent in the effort to make sure the appropriate dollar amount of life insurance is in place as well as appropriate beneficiaries on file.

Higher-net-worth families may utilize an irrevocable life insurance trust, which has specific requirements to bypass the probate process and remove assets from being subject to estate tax.

Re-titling of assets and review

Once the estate plan is complete and documents have been signed and notarized, it’s time to make sure all the assets are titled correctly. If a trust has been created, the attorney will typically advise on how to title your assets to make sure they flow correctly in the estate process.

If assets aren’t re-titled, you will lose the benefit of the planning process, and your assets may be disposed of in a manner not consistent with your goals.

For example, you may need to change the title of your home to reflect the new trust you have created. Doing so means when you pass, your share of the home will flow according to your trust document and not the default probate rules in your state.

Likewise, vehicles, bank accounts and other assets will need to be titled accordingly. This process can take a bit of effort, but hopefully titles won’t need to be changed again or often.

Retirement accounts will have beneficiaries listed — your attorney should also be able to recommend how to title those.

Due to rule changes for non-spouse beneficiaries in the SECURE Act, it is typically most efficient to name your spouse as primary beneficiary and then other family members or trusts as contingent beneficiaries. Your estate planning attorney will also be able to make sure any trusts are drafted in such a way to be optimal with the new 10-year rule for inherited retirement assets for non-spouses.

Finally, it is worth checking in with your attorney or financial adviser every three to four years to ensure that your estate plan is still in good shape. Occasionally, family relationships may change, and you may need to update your beneficiaries.

If your relationship sours with a family member or successor trustee, you may need to adjust that in your estate plan. It is always possible to make amendments to an estate plan with the appropriate documents. It’s important to document any changes (such as change of trustee or altering a gift amount) and use the appropriate tools or professional to make sure the amendments are drafted accurately.

Additionally, federal estate law may change, and if and when that happens, your trust may need to be updated to fully take advantage of the current laws. Our current federal state tax exemption, which is $12.92 million for an individual, is much more generous than it was 10 years ago (when it stood at $5.25 million).

However, the current exemption may well decrease in the future if the federal government does not extend the current limits past 2025, when they will revert to $5 million per individual.

In any event, the important thing is to view estate planning as an ongoing process and not a one-time event.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees, and services can be found at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal securities transactions or provide personalized investment advice. The information provided does not constitute any legal, tax or accounting advice. We recommend that you seek the advice of a qualified attorney and accountant.

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.

Shane W. Cummings is based in Halbert Hargrove’s Denver office and holds multiple roles with Halbert Hargrove. As Director of Technology/Cybersecurity, Shane’s overriding objective is to enable Halbert Hargrove associates to work efficiently and effectively, while safeguarding client data. As wealth adviser, he works with clients in helping them determine goals and identify financial risks, creating an allocation strategy for their investments.