Basic Steps for Estate Planning

Managing your wealth means thinking beyond just creating a successful budget. With long-term planning, you’ll want to have a good strategy in place to transfer your wealth the way you’d like to – and to the people who you want it to go to.

Even if you’re not wealthy, taking the basic steps for estate planning is important to make sure your loved ones receive their inheritance the way you envision.

What is Your Estate?

Your “estate” is more than just the money you have in your bank and retirement account. It also includes any property like your home or any valuable assets like jewelry or antiques. That’s why an important first basic step to estate planning is actually taking an inventory of what you have.

When you tally up your estate, include both tangible assets like property and intangible assets like life insurance policies. In more detail, here are examples of tangible and intangible items:

Tangible Assets:

• Property like homes and land
• Vehicles like cars or boats
• Collectibles like art or antiques
• Any other valuable personal property

Intangible Assets:

• Retirement accounts such as 401(k) plans or IRAs
• Checking and savings accounts
• Investing accounts with stocks, bonds, or mutual funds
• Any ownership in a business
• Life insurance policies
• Health Savings Accounts (HSA)

When you have a list of the specific items to include in your estate, your next step is to put a value on them. To do this, you may need the help of an appraiser, especially for tangible assets, – or you may not!

For example, when you estimate the value of your home, you could use an online tool like Zillow which gives you an estimated market value. But if you are serious about tending to all the details in your estate, it might be worth it to hire an official appraiser who can give you a personalized estimate for your home. They can account for any upgrades or details that platforms like Zillow might not account for.

You can easily estimate the value of vehicles with resources like Kelly Blue Book, which provides a range of price points depending on the condition of your car. With motorcycles and boats, you can find similar vehicles for sale on the market and estimate their value that way.

Finally, with jewelry or collectibles, you should strongly consider getting those appraised from an official source that can provide a certificate of authenticity and place a value on them.

Having accurate values of your entire estate helps you better determine how to divvy it up among your heirs.

5 More Basic Steps for Estate Planning

1. Determine if You Need Professional Guidance

Hiring a financial advisor to assist you with estate planning can help you make sure you have all your bases covered. Not everyone needs extra advice, which can be costly, but if you can afford professional assistance, it certainly can’t hurt and can only help.

For people with smaller estates, you could probably develop an estate plan on your own with a bit of careful planning. You can leverage free online tools like programs to help you write your will and take care of how your assets will be divvied up on your own.

For many people, especially people with larger estates, a professional advisor is critical, and the cost of hiring one is more than worth it.

Professionals like attorneys or estate tax attorneys can walk you through more complicated steps like understanding different laws and the tax consequences of setting up your estate plan in different ways. They can save you a lot of money and time.

2. Understand Your State Tax Laws

You’ll want to try to minimize the impact of taxes on your estate so that your heirs can receive as much of your wealth as possible. Whether on your own or with the help of a tax professional, understanding your local laws on how estates are taxed can help you make the best decisions about your assets.

Most people won’t have to worry too much about estate taxes because in most states the bar for taxation is high. At the federal level, you don’t face an estate tax until your estate is larger than $11.5 million and many states follow suit. However, some states do have lower limits on what size estate will be taxed, which is why it’s important to know your own local laws.

A tax law can have a significant effect on how much your heirs actually receive from your estate and how much goes toward taxes.

3. Understand Your Family’s Needs

Estate planning is a very personalized process because everyone’s financial situation is different, and everyone’s family circumstances are different.

When you sit down to draft your estate plan, identify the important needs in your family that you can help address with your assets. Whether you’ll need to make sure your spouse can continue to pay mortgage payments, or you want to help grandchildren attend college, you’ll need to decide how best to protect your assets so that they serve the needs of your family.

4. Name Your Directives

Another basic step to estate planning is detailing directives for how you would like your assets managed, from when you are unable to manage them yourself to when you pass away. Some directives you can include in your plan:

• Medical Directives. These directives dictate how you will receive medical care when you can’t communicate those wishes.
• Power of Attorney. This gives someone else the right to handle your financial affairs like paying your bills and managing your assets. They might have the power to sign important documents related to financial matters.

5. Specifying Beneficiaries

On many of your financial accounts, you will be able to name a beneficiary who will receive those funds after your death.

Officially naming beneficiaries on accounts like 401(k)s, IRAs or life insurance policies can go a long way to preventing confusion and misunderstandings when your wealth is transferred. This is true even if you have a will.

The Bottom Line

It is never too early to start taking the basic steps toward estate planning so you can pass on your hard-earned wealth just how you’d like.

Once you’ve developed a solid estate plan, you’ll also want to prepare to revisit it often. After all, life changes and so does the size of your estate and your plans for it. You may find you have different priorities as your circumstances change, perhaps following a divorce, the death of a loved one, or the birth of a child, to name a few examples. These life shake-ups can directly impact your long-term financial planning strategies.

But even if your life remains on the course you predicted and nothing really changes, you might want to revisit your estate plan anyway. That way, you can ensure what you’ve outlined still meets your goals and follows all laws.

Revising your plan is a good final basic step for estate planning. But, of course, the most important step is creating an estate plan in the first place!

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