Setting Up an Estate Plan: Protecting Your Assets and Ensuring Your Legacy
You have devoted your entire life to building your legacy. The question is, how do you protect your assets and the legacy you have worked so hard to forge and pass on generational wealth to your children and your children’s children? The answer: set up an estate plan.
Creating an estate plan has likely been on your radar for years. However, it can be easy to put off some things you know you should do while you focus on making every second of your life count. That said, now is the ideal time to create a detailed estate plan outlining how your legacy will live in your stead.
Here are seven easy steps that you can use to create a comprehensive estate plan:
1. Sign a Will
According to Gallup, less than half of American adults have a will. A will is a legal document designed to ensure your assets will be distributed according to your wishes. Without a last will and testament, your assets and property will be distributed in accordance with state laws. Typically, this means that your legacy will be divided among your spouse and children.
In your will, you can name an executor, which is the individual tasked with carrying out your last wishes, paying your debts, and distributing your estate.
2. Name Your Beneficiaries
While creating a will is certainly an important part of estate planning, it does not govern the distribution of assets that are exempt from the probate process, such as a co-owned home or retirement accounts. For instance, if you are married and jointly own a home with your spouse, they will have the right of survivorship and will assume your share of the home.
If you have payable-on-death brokerage accounts, savings accounts, or life insurance policies, you must designate beneficiaries with the fund managers. You can allocate all of the funds to a single beneficiary or divide them in whatever manner you choose. You must also name beneficiaries for your individual retirement accounts, 401(K), or pension plan.
3. Be Mindful of Estate Tax Laws
Estate taxes are levied against a decedent’s assets before those assets pass to their designated beneficiaries. In the U.S., federal estate taxes range from 18% to 40%. Fortunately, you can take advantage of federal gift and estate tax exemptions. The exemption amount increases every year to account for inflation and is large enough to protect most Americans from paying any federal estate taxes.
In 2022, the estate tax exemption was $12.06 million, and in 2023, it increased to approximately $12.92 million. Your beneficiaries won’t owe federal estate taxes unless your estate exceeds that limit. However, they may be subject to state-level estate taxes.
4. Compose a Letter
You may want to compose a separate letter to pass on sentimental items, describe the type of funeral arrangements you prefer, or address other more private matters. Depending on where you live, your letter may or may not be recognized as a binding legal document, so make sure to consult with an attorney.
If you have concerns about what needs to be included in your will and what should be listed in the letter, consult an estate planning attorney. They will help you create a comprehensive estate plan that preserves your legacy.
5. Create a Durable Power of Attorney (DPOA)
A durable power of attorney (DPOA) ensures your wishes regarding health care and financial management are adhered to if you become too sick to make decisions on your own. A DPOA appoints a trusted friend or relative to manage your affairs if you cannot handle them independently.
A durable power of attorney remains in force even if you become incapacitated. Without a DPOA, a relative or friend would have to petition a judge to give them authority over your assets so they could manage your affairs and pay your bills.
6. Draw Up a Living Will
A living will, alternatively referred to as an advanced healthcare directive, outlines what type of medical care you will receive as you near the end of life. In a living will, you can opt in or out of certain medical procedures, specify if and how long you should be kept on life support, and exercise control over your healthcare journey.
Like a last will and testament, a living will must identify a proxy. This individual will execute your wishes and ensure that medical professionals carry out your care plan.
7. Get Organized
During the probate process, your attorney or executor will need access to all of your important documents, including insurance policy information, account numbers, fund management data, etc. To help your loved ones carry on your legacy, ensure all your documents are organized and accessible.
Many elect to put a copy of these documents in a safety deposit box. Provide the financial institution with instructions on who can access the box and under what circumstances the documents can be retrieved.
Create an Estate Plan and Leave Behind a Legacy
As you contemplate how best to preserve your legacy, make sure to create an estate plan. Connect with a skilled estate planning attorney and leverage additional resources to ensure your legacy lives on and your loved ones are well cared for.
