Estate Planning for You and Your Business

How to Create an Estate Plan in 7 Steps

Estate plans can get complicated quickly. So first thing’s first: getting started.

1. Assess Your Needs, Assets, Debts

Before you jump into planning mode, consider what you want and need to accomplish with your estate plan.

• Can you keep it simple? Is your estate relatively small, your children grown, family relationships strong? The more streamlined your situation, the more streamlined your plan can be.
• Or are your needs more complex? Do you have a lot of assets, young children, rifts in your family, outstanding debt? The more complicated your estate, the more involved your estate plan will likely be.

2. Create a Will

A testamentary will is the most standard and essential document in your estate plan. It’s the one estate planning tool every adult likely needs to have in place, regardless of age or financial status.

Your will can be basic or detailed, outlining everything from who gets which belongings to who your children’s guardian will be. If you’ve created other estate planning documents, such as a trust, a pour-over will may come in handy—this states that any assets not named in the trust should transfer to the trust upon your death.

3. Prepare Additional Documents

Alongside a will, additional estate planning documents can help you create a robust plan that accounts for numerous situations.

• Trusts can be particularly useful if you have a large estate and/or want to help limit your beneficiaries’ estate tax and probate burden.
• A power of attorney can provide peace of mind should you need assistance managing your money/assets or your healthcare.
• Healthcare directives outline your medical wishes should you become incapacitated.

4. Write Down Funeral Wishes

While not absolutely essential, drafting your memorial service vision helps ease the stress on your loved ones and ensure that your service reflects you.

You’ll also want to write out your burial wishes. For both this and your memorial service, be as detailed as you can. And if you’ve set aside any money for your arrangements, or already have a deposit placed at a funeral home, make sure that’s detailed too.

It’s wise to keep these details separate from your will. Estates can take a long time to sort out, and those helping with your arrangements may not see your will early on. Consider both writing down your wishes and talking them over with your loved ones.

5. Organize Paperwork

A thorough estate plan comes with ample documentation and paperwork. While you may want to keep digital files of your estate plan, consider keeping physical copies, too. Keep the files organized and in a secure location, but not a location so secure that your beneficiaries can’t access it.

Make sure all your paperwork is dated, as well. If there are discrepancies or disagreements, dated documents will help your heirs and beneficiaries understand your final wishes.

6. Inform Beneficiaries

Writing down your wishes is incredibly important for estate planning. But it’s also important to talk things over with your loved ones. This helps provide context, minimize surprises, and reduce potential friction.

Of course you’ll also want to keep these discussions consistent and match them up with your written plans. Telling your kids one thing, your spouse another, and writing something else in your will may create angst down the line.

7. Update Your Plan as Needed

Especially if you start estate planning early, your documents need to be updated over time. The plan you put together at age 40 will likely look different than the plan you make at 75.

As you update your plan, make sure to void old versions and inform beneficiaries as needed to minimize confusion.

What happens if I die without a will?

Dying without a will is known as “intestate.” Without a will (or other viable documents like a trust), all applicable assets will enter the probate process, and courts will use state law to determine inheritance.

Although wills go through probate, they help streamline asset distribution by guiding the courts in the direction of your wishes. Without a will, the process is generally more complicated and confusing for your loved ones.

How are beneficiaries and heirs different?

Heirs and beneficiaries can be one-and-the-same, but they don’t have to be. While both can have a legal right to a deceased person’s property, these rights are granted differently.

An heir has an inherent, legal right to one’s property. If a person dies without a will or trust, courts determine who the heirs are, then distribute the estate according to state law.

A beneficiary is named in a trust or a will as a recipient of certain property. Their right to this property exists because it is named in a valid document, not because it is inherent. Different from heirs, beneficiaries don’t need to be family of the deceased (though of course they can be).

Is it possible to avoid probate?

Probate is the court-led process through which a will is deemed valid and a person’s assets are distributed after their death. It’s also through probate that debt-collectors may come knocking. The process can be long and expensive, which is why many seek to avoid it.

While every state has its own probate rules, there are a few ways you may be able to keep more of your estate out of probate:

• Place assets into a trust
• Set up joint ownership
• Pursue “small estate” alternatives

In addition, some types of property, like retirement accounts (if properly set up) can avoid probate entirely. Assess your personal situation and your state’s laws to determine viable options.

Can creditors take away inheritance?

In some cases, creditors can claim certain assets you’ve inherited or are slated to inherit. The outcomes and rules change by state, how the the estate is set up, and who owes money (you? or the deceased?).

If you’re at all concerned about debt and inheritance, it’s wise to speak to an estate lawyer ahead of time. Things can get complicated fast, but a good lawyer can help you prepare and know what to expect.

I’m the executor of an estate. Now what?

Named in a testamentary will, an executor has the responsibility to distribute an estate fairly, legally, and according to the deceased’s wishes. Depending on the estate and what it involves, being the executor can be a big job.

As executor, you’ll have numerous tasks. Some of these include:

• Obtain death certificate copies. You’ll need a handful of copies for things like claiming life insurance, filing taxes, and notifying social security.
• Make funeral arrangements. Ideally your loved one made this easier by talking to you about it ahead of time, and/or writing down their wishes.
• Figure out if probate is required. Most wills need to go through probate. (You may need to file the will with probate court even if it won’t actually go through the probate process.) Alternatives might be available based on your state’s laws, the estate’s size, and the estate plan as a whole.
• Manage and distribute assets/belongings. If the estate also includes a trust, you’ll likely need to coordinate with the trust administrator. If the will goes through probate, you’ll also need to wait for that process to end before distributing property.