Having an estate plan is not just for the super-rich. Anyone who wants to bypass protracted probate court for their heirs and beneficiaries should have a plan in place for when they die or become incapacitated. Any investment that produces assets should be considered, and you'll want to make decisions about distribution well ahead of time.
Designating heirs and beneficiaries for your assets is the main component of estate planning. Without an estate plan, a probate court often decides who gets what. That process can take years, rack up large court and legal fees, and be unpleasant and hurtful to beneficiaries.
Creating an estate plan on your own can be confusing and overwhelming. To ensure you hit every plan aspect, you must understand what an estate plan entails and when you might need an estate planning attorney.
What is estate planning, and when do you need an estate planning attorney?
The estate planning process prepares for someone to preserve, manage, and distribute your assets after your death or incapacitation. Estate plans also include asset bequests to different heirs or beneficiaries, and guardianship of your minor children and your pets is covered in estate planning as well.
An estate plan must include instructions to settle your state inheritance taxes (if your state has them) and federal estate taxes. Your executor must also know your debts and how to pay them.
An estate planning attorney can help you decipher how to navigate the estate planning process and stay in compliance with your state requirements. You can do some of these things independently, but there are certain points in the process when an estate planning lawyer would make your estate plan more secure. Anyone with a very large estate or any complex assets should use an estate planning attorney's service during the process.
Estate planning process checklist
There are many steps in the estate planning process. Here are the basics:
1. Assess the value of your estate
The first step in your estate planning process is to itemize and calculate the value of your estate. This list can include, but is not limited to:
- Bank accounts
- Business ownership
- Real estate
- Retirement policies
- Health savings accounts (HSAs)
- Life insurance
- Investment accounts
Putting together this list can seem daunting, but it forces you to consider every asset for the estate plan. It also helps you calculate your estate's total value, which helps your estate attorney address estate and inheritance taxes, asset protection, and Medicaid planning. Skipping this process means the difference between heirs and beneficiaries dealing with extended and potentially messy probate proceedings. Once completed, it is much easier to update as your assets, heirs, and beneficiaries change.
2. Choose beneficiaries
Once you've made your asset list, decide how you want to divvy up property. Some states won't allow you to disinherit your spouse, and Louisiana has what's known as forced kinship laws. These laws prohibit you from disinheriting certain kin—most commonly spouses, children, and grandchildren.
For most people, choosing beneficiaries is simple: Their spouse, children, parents, siblings, and other family members are natural heirs. Experienced attorneys can point out and help you handle particular legal situations, so whatever you wish to leave your beneficiaries doesn't cause unnecessary complications.
You must also choose beneficiaries for assets to pass on outside your will, like retirement plans and insurance policies, and you should name beneficiaries for regular financial accounts, like checking or savings accounts. This is done through your financial institution and often online. This step allows your heirs or beneficiaries to skip probate.
Once your beneficiary list is completed, you'll want to put a residuary clause in your will. This ensures you have a catch-all beneficiary designated for all unlisted assets. An asset with no beneficiary designated cannot be passed under your will. The asset is treated like you died intestate (without a will). That means your state's inheritance laws determine the item or items' distribution instead of whatever way you want. Your heirs and beneficiaries will need to hire probate attorneys to help them gain access to your estate.
3. Choose an executor
This person is responsible for distributing assets as you wish. An organized, responsible, and trustworthy position is best for this position. You'll also want a person who understands your wishes and is empathetic to them. (If you've set up a trust, you'll appoint a trustee with the same characteristics.)
4. Find professional estate-planning help
When you're at the point of putting pen to paper, it's best to hire specialists to help you create your estate-planning documents. They'll craft a comprehensive plan (or update your existing plan) accounting for your assets, family, and future long-term care needs, as well as potential inheritance and estate taxes.
To find good help:
- Ask friends, family, and other attorneys for referrals
- Check your state bar association for a referral service
- Look for someone certified in estate planning (if your state offers such certification)
- Interview your prospective estate planner to determine if they are a good match
If you have any doubts about the estate planning process, it might be best to consult a qualified estate planning attorney and possibly a tax adviser. They can help determine if you're on the right path, especially if you live in a state like Maryland, which has estate and inheritance taxes.
If your estate is large or complex—think business issues, special childcare concerns, long-term care needs, or nonfamilial heirs—you should consider an estate attorney and tax professional.
5. Consider a living trust
Life happens. A simple trip to the grocery store could result in an accident that incapacitates you. A trust is helpful in these situations. Outside those extreme circumstances, you may simply want to provide certain protections to your heirs or beneficiaries after death.
6. Create a living will
Living wills, also known as medical directives, health care directives, or advanced care directives, are an essential part of your estate plan. Even if you don't have a will, you should have a living will. A living will allows your family or representative to know your preferred medical interventions and treatments in certain circumstances. This directive allows them to make very difficult decisions on your behalf without the uncertainty or guilt that can come with making end-of-life decisions. The living will is evidence of your wishes should your health care professional be challenged by anyone, including health care personnel while carrying out your wishes.
7. Create a durable power of attorney
This agent will make financial decisions for you when you become incapacitated. If the idea of turning over everything to someone else concerns you, create a limited power of attorney to limit the powers of your named representative.
8. Sign documents
After you've reviewed your assets and chosen your beneficiaries and executor, meet with your lawyer to write up the documents you need. This entails a meeting where you'll fill out informational documents to convey everything you have compiled. The lawyer takes your information, creates your documents, and sends them to you for review. You then have another meeting where you review the documents page by page and note any changes or updates. Once incorporated, sign (execute) your documents. Working with an estate planning attorney at this point is a good idea because there are rules you need to follow. Documents not executed properly are easily invalidated.
9. Plan to reassess
Life changes and your estate plan should change right along with it. Conduct periodic reviews. Keep your plan up to date because you may experience marriage, divorce, the birth or adoption of a child or grandchildren, the loss of a loved one, gain a new job, loss of a job, or any number of complex situations. You might make a large purchase, such as a home, or experience a major financial event, such as bankruptcy. Inheritance laws and estate laws, as well as tax laws, change. All these circumstances, among others, should prompt another look at your estate plan. It takes some effort to revise your plan but feel confident in the fact that you already avoided the biggest estate planning mistake of all: never to have drafted one in the first place.
Here are some common questions about when you need at attorney for estate planning.
What makes a good estate planning attorney?
A good estate planning lawyer knows estate law and elder law, as well as your state's inheritance laws and legal process. An experienced estate planning attorney will take you through questionnaires for a will and/or a trust, depending upon your situation, and will have either in the law firm or on referral at least one certified financial planner (CFP) who will help you in matters related to your estate and inheritance tax situation (if applicable). CFPs working with estate planning attorneys will create for you the most customized estate plan.
Why a certified financial planner rather than a certified financial adviser?
Certified financial advisors (CFAs) focus on investment management and analysis for corporate clients. A certified financial planner focuses on personal financial planning for individual clients. The CFA will advise on buying and selling stocks, mutual funds, and bonds, whereas a CFP will help clients achieve financial goals through wealth management and financial planning skills.
How much does an attorney cost?
The cost for attorneys experienced in writing wills and estate plans varies depending on the law firm. A basic estate plan will cost less than a complex estate plan. The right estate planning attorney will consider your legal needs and financial situation during your initial meeting. During that meeting, you will learn whether the potential attorneys available will charge an hourly rate for writing estate plans or charge flat fees for either the full individualized plan or each part of the plan separately. Many attorneys either do not charge for the initial meeting or charge a small fee for the meeting time. It's best to research several estate planning attorneys, find out what their hourly rates are, and what their experience is to find the right attorney for you.
What's the difference between an estate and a trust?
Both make up the two main legal structures for transferring assets to your beneficiaries and heirs. They are quite different from each other. An estate makes a one-time asset transfer after your death; a trust can create an ongoing asset transfer before and after your death. Your trust and estate counsel can help determine whether one or both will be most beneficial for your needs.
Find out more about Estate Planning Basics