7 Steps to Develop Your Best Estate Plan

Creating or updating an estate plan can seem overwhelming, but it doesn’t have to be.

There are a lot of pieces to a plan and decisions to be made. That’s why many people procrastinate and don’t create or update their plans, though they know it’s important.

To develop your best estate plan, I recommend breaking the estate planning process into different steps or pieces. Work on one step at a time, and the process will seem manageable and be completed in a reasonable time.

While there are many possible approaches, I recommend viewing estate planning as seven different steps.

Lifetime protection and care. The first step is to be sure you have a power of attorney and advance medical directive. If you already have these documents, review them to be sure they reflect your current needs and circumstances.

Few advisors list these documents as the first actions to take. But it’s urgent that current versions of these documents be in place. The rest of the estate plan can take some time to prepare. These documents shouldn’t wait for the rest of the process.

You need the power of attorney and advance medical directive to ensure you and your assets are taken care of in case of an accident or medical event. Discuss the details of the documents with your estate planning attorney, such as who should act as your agents for financial and medical decisions, any limits you want to put on their actions, and any guidelines you want to provide them. Then, have the attorney prepare the documents.

More details about these documents are in our June and July 2023 issues.

The inventory. Next, compile or update a comprehensive list of what you own and owe, also known as the inventory.

Acceptable estate planning documents can be developed without an inventory, but not having one raises the probability the plan will be incomplete or have major oversights and mistakes. You can’t have confidence in an estate plan without first preparing an inventory.

More importantly, your executor and trustees will need an inventory to administer the estate in a timely and efficient manner. It serves as a road map to your estate. Without a complete, updated inventory, time and money frequently are wasted when your successors try to identify all the assets and debts.

A bonus of having an inventory is that many people find they manage their finances better and with less stress after they develop an inventory and keep it updated. Compiling an inventory causes some people to realize they need to simplify and streamline their investments and asset ownership.

Of course, the inventory should include physical property you own, such as homes, other real estate vehicles, collections, jewelry, art, antiques, and the like.

Any assets that have sentimental or emotional meaning for you or someone else should be listed and considered for specific bequests in a will.

Also, itemize financial and other nonphysical assets, such as investment accounts, retirement accounts, life insurance, trusts and any others you have. Frequently overlooked are employer-paid life insurance and veterans’ life insurance.

Include an inventory of all the different types of insurance you have. An executor or trustee might need this information to file claims, so your estate isn’t reduced by expenses that are covered by insurance. They’ll also need the information to cancel any automatic premium payments that are in place.

Include the details of any debts. An estate can’t be settled until the debts are paid.

Compile the supporting documents. Most of the assets have some documentary evidence or support. Those documents can be helpful in developing the details of your estate plan and are necessary for your executor or successor trustee. Key documents include deeds and titles, registration documents, insurance policies, account statements and any others relevant to your estate.

Copies of income tax returns also are important to develop an estate plan and settle the estate.

Your identity documents are important for administering an estate, including driver’s license, passport, Medicare and Social Security cards, marriage and divorce documents, and any military service records. Make copies of these and state where the originals can be found.

The documents must be stored. One approach is to keep all the documents together in a fireproof box or other storage device. Another approach is to have a list that states where each document is located.

The digital estate. Digital assets and obligations are treated differently under the law and have grown to an extent that for many people they are a separate consideration.

Survivors need to know how to access your smartphone, email and any social media accounts. They also need to know about access to online accounts and services, automatic payments and more.

Details about estate planning for your digital assets and obligations are in the December 2023 issue of Retirement Watch.

For help in putting together the inventory and documents, consider my workbook, To My Heirs: A Book of Final Wishes and Instructions. Details are in the Bob’s Library section of the website.

Review the beneficiaries. Your will and trust don’t control who inherits your retirement accounts and annuities or receives life insurance benefits.

Also, some accounts are jointly owned or have transfer-on-death designations. The dispositions of these assets are controlled by the beneficiary designations you made.

You might own other assets that are inherited by terms of a contract instead of the will and trust.

Many people made the designations years ago and forgot about them. They don’t realize the money will go to people they no longer intend.

You might want to review beneficiary designations in consultation with your estate planner to ensure the designations are consistent with the rest of your estate plan and meet your tax reduction and other goals.

Develop the plan. Once the estate is defined and the documents are collected, it is time to discuss details and strategies with an estate planner. One key benefit of doing this work is the estate planner can focus on developing the plan. It also could reduce the cost of your estate plan.

After reviewing the information and determining your goals and preferences, the estate planner can make recommendations about the terms of your will, whether any trusts should be used and any strategies to consider for transferring or repositioning assets.

An important step is designating your executor and any trustees. You want people who can handle the positions and are willing to do so. Talk to your candidates before making it official. Too many people don’t give enough attention to these decisions. That diminishes the effectiveness of their estate plans. See the May 2023 issue for details.

The estate planner also can help with decisions such as custody of children or pets and the transfer of assets that are personal to you or specific loved ones. The planner might help record your preferences for final arrangements.

Follow up. After executing the key documents, the original copies need to be stored securely.

Your executor, successor trustee and agents under your power of attorney and advance medical directive need either copies of the documents or knowledge of their contents and how to obtain them when needed. These days, storing copies digitally online or on a portable drive is a good option.

After the documents are prepared, many people forget to take key actions such as transferring legal ownership of assets to a living trust, so they avoid probate. Your estate planner should prepare a checklist of the actions you need to take once the documents are complete.

It is a good idea to be sure prospective heirs know the plan in general, especially if it contains anything that one or more of them might consider a surprise. Bad things often happen when people learn about surprises after the estate owner has passed away and isn’t available to explain or answer questions.

Keeping your inventory and compilation of documents up to date is an important element of following up.

Review your estate plan and be sure the inventory is updated at least every few years. The plan also should be reviewed when there’s a change in the relevant law, especially the tax law. Reviews also are in order when there’s a change in your family or personal circumstances or your goals.