Estate Planning Checklist: Five Tasks to Prioritize

It’s difficult to think about what may happen if your health starts to decline — or how your loved ones will carry on after your death. But doing nothing to plan for these events could result in you losing control over your affairs while you’re still alive—and result in confusion and anger from your loved ones after you’re gone.

You can help prevent these unwanted consequences by making these decisions while you’re still healthy, documenting them and communicating them in advance to your loved ones. While there are many issues to think about, here are five decisions you should move to the top of your priority list.

1. Document your health care and interment wishes

It’s important to make sure family members and friends are aware of your medical treatment and interment wishes before a health care crisis takes these decisions out of your hands. Fortunately, there are ways you can formally document these directives in writing so there’s no misunderstanding.

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Health care proxies

A health care proxy, also known as a medical power of attorney, is a legal document that authorizes one or more people to serve as health agents who can make medical decisions on your behalf should you become physically or mentally incapacitated.

Most people assign their spouse or partner as their primary health care agent and one of their children or a close family member or friend as an alternate agent should the primary agent pass on or also become incapacitated. Generally, each state has its own health care proxy/power of attorney forms.

A living will

These legal documents allow you to specify which kinds of treatment and long-term care options you prefer. On the form, you specify whether or not you wish a physician to employ resuscitation procedures, ventilators, tube feeding or other life-sustaining procedures.

Medical orders for life sustaining treatment (MOLST)

Also called a physician orders for life-sustaining treatment (POLST), this form is a set of medical orders signed by a doctor for patients after they’ve been diagnosed with advanced illness who could die within the next few years. You can create this form even if you’re not ill. It will go into effect only if you’re facing an end-of-life situation.

Most states have their own form, which must be signed by you and a physician. Unlike a living will, it is not generally considered a legal document. Instead, it is a doctor’s order.

Organ donations

If you’ve never registered as an organ donor with your state, you can do it online. Start at www.organdonor.gov to connect to your state’s donor registry.

Interment agreements

If you’ve already made arrangements with a funeral home or a cemetery, make sure your loved ones are aware of this.

Note that some states have comprehensive advance health care directive forms that allow you to designate health care agents, specify treatment preferences and authorize organ donations in a single document.

Once you’ve filled out any of these forms, make several copies and give them to your chosen health care agents and your estate attorney. While you don’t necessarily have to give them to your children, friends or family members, you should consider discussing your directives with them.

2. Choose an executor

The executor will be responsible for managing the distribution of assets in your estate. These could include your home, your non-retirement investments, your vehicles and other valuable items.

Your executor doesn’t have to be a legal professional. As long as you've assigned an estate attorney to do the heavy lifting, anyone can serve as executor, including your children, a family member or a close friend.

If you ask a non-professional to serve as executor, make sure they understand their responsibilities. It could take months or years for your estate to be settled. During this time, your executor may need to have multiple in-person meetings with bankers, appraisers, attorneys and state and local officials.

Once you’ve chosen an executor, it’s a good idea to introduce them to your estate attorney, even if it may be years or decades before they’ll have to work together. And remember that you can change your executor — or add a co-executor — at any time.

Whomever you choose for this role, make sure your heirs are aware of this decision.

3. Protect your financial interests

Many parents don’t want their heirs to know how much they’re worth — or how much they may inherit. It’s perfectly acceptable to keep this information close to the vest, but it may be a good idea to set their expectations, especially if they believe they’re going to receive much more than you intend to give them.

There are additional steps you should take to protect your financial security.

Assign a financial power of attorney

At some point, you may want to fill out a financial power of attorney form to give control of your finances to others, should you no longer be able to manage them yourself. Like a health care proxy, usually a spouse or partner is assigned as a primary proxy, with a child or other family member or close friend as an alternate.

Anyone can serve in this role, but preferably they should have a strong understanding of personal finance and investing. Should a health care crisis require them to intercede on your behalf, they’ll need to make critical decisions that may involve significant adjustments of your investment strategy and accelerated withdrawals from your banking and investment accounts to fund your medical and long-term care expenses.

Once you assign financial power of attorney, give this person an overview of all of the assets held in your banking and investment accounts as well as any outstanding debt obligations. Also consider introducing them to your financial adviser, accountant or estate attorney so they can get to know each other before a crisis requires them to start working together.

Consider removing assets from your estate

If you have significant wealth or own one or more properties, expensive vehicles or fine art or collectibles, you may want to look for ways to remove these assets from your estate. Doing so will keep the disposition of these assets from going through a potentially lengthy probate process.

One strategy is to start distributing some of your wealth to your heirs in a series of lifetime gifts. For example, in 2023, you and your spouse or partner can each gift up to $17,000 per recipient without having to report these gifts to the IRS.

Moving assets into a trust may also remove them from your estate.

Both of these strategies may also shield these assets from estate taxes after you’ve passed on. But unless you’re a “one-percenter,” this may not be an issue. That’s because the current lifetime federal estate tax exemption is $12.94 million for individuals and $25.84 million for couples.

This exemption, established by the Tax Cuts and Jobs Act of 2017, is scheduled to expire in 2025. If not renewed, the lifetime federal estate tax exemption could be reduced to $6 million for individuals ($12 million for couples) in 2026.

Again, relatively few people have to worry about this. However, keep in mind that many states also have estate taxes, with lifetime exemptions as low as $1 million.

And while transferring assets into trusts may exempt them from estate taxes, these transfers may also reduce your lifetime federal gift tax exemption (which is the same amount as the federal estate tax exemption). That’s why it’s important to discuss these issues with an estate planning professional who can offer solutions to address your specific situation.

Discuss your trust

If you’ve placed most of your assets in a trust to remove them from your estate, make sure your heirs understand this decision.

This kind of disclosure is particularly important if you’ve transferred your home, vehicles, artwork or jewelry to the trust and have instructed the trustee to sell these assets after you and your spouse or partner have passed on. Your heirs may be upset by these decisions, but at least they'll know in advance that they shouldn’t expect to take ownership of these assets.

Appoint a successor trustee

You and your spouse or partner are probably trustees for your living trust. But you may want to formally designate a family member as a successor trustee to take on this role on your behalf should you become physically or mentally capacitated.

You can also appoint a successor trustee to represent the interests of beneficiaries after you and your spouse or partner pass on.

Examine tax issues for beneficiaries

Your heirs generally won’t have to pay taxes on cash they receive from your estate or from life insurance payouts. However, they may or may not have to pay taxes on income they receive from the sale of your home, private business shares or other physical assets. If they don’t work with an accountant or tax professional, you may want to introduce them to yours, so they won’t have to sort through these complex tax issues on their own.

If you’ve transferred assets into a trust, beneficiaries generally won’t have to pay taxes on the value of the principal they receive after you’re gone, but they may have to pay taxes on distributions of earnings or income generated by these assets.

Also, if you plan for your heirs to inherit any money remaining in your traditional IRA or 401(k) plan accounts, make sure they’re aware of this, since as beneficiaries they may have to pay taxes on any required or elective distributions.

If you're able to convert some or all of these assets to a Roth IRA while you're still alive, your heirs won't have to pay any federal taxes on distributions or withdrawals from balances they inherit once the account has been established for five years or more. But you will have to pay taxes on the amounts you convert, so it’s up to you to decide whether to take the “Roth conversion tax hit” yourself or avoid converting and let your heirs deal with the tax consequences after you’re gone.

4. Finalize your will

Hopefully, you’ve written a will that clearly specifies how your assets will be distributed. You may be hesitant about discussing it with your heirs, but you should consider doing so, especially if they’re under the mistaken assumption that they’ll be inheriting the bulk of your estate.

If this isn’t true — for example, if you plan on leaving most of your wealth to charity — then it may be better to inform them of this decision sooner rather than later.

5. Create a ‘need to know’ file

Once you’ve made these critical decisions, it’s important to communicate them ahead of time to those who will be most impacted. If you don’t feel comfortable talking about these issues in person, consider recording a video in which you explain your wishes and share what steps you’ve taken to document them.

Make it easy for people to access the information they need to carry out your wishes by creating a comprehensive “end of life” file. It should include:

• Copies of your health care and financial proxy forms.
• Copies of your life insurance policies.
• Contact information for your primary care physician, medical specialists, attorney, accountant, financial adviser, life insurance agents or any other professionals they may need to contact in a health care emergency or after your death.
• At least one copy of your bank, investment, mortgage and loan statements.
• A list of all your credit card numbers and any associated PINs needed to access these accounts.
• Usernames, passwords and personal identification numbers for all of your online accounts, including social media accounts.
• Any interment agreements you’ve already made with a funeral home or cemetery.
• The location of vehicle titles, deeds, mortgage documents and past tax returns and records.
• If you’re a business owner, copies of any business succession plans and the location of ownership-related documentation.

Sorting through all of these complicated end-of-life issues may seem overwhelming. That’s why you may want to discuss them with a tax professional or estate planning professional while you’re still physically and mentally healthy. Doing so will help you make decisions that will make it easier for your loved ones when the time comes.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.