Estate Planning Checklist: Important Steps and Must Dos

Contrary to popular belief, we all need to plan our estate irrespective of whether one has a large or moderate estate. Without such preparedness, you risk complicating the settling of affairs upon your demise or incapacitation. Estate planning in Massachusetts can be pretty straightforward with the right resources. That’s why you’ll need an estate planning checklist to help you create an estate plan in as little time as possible. A checklist also helps you establish the most suitable estate plan for your needs. Wanna know more? Let’s jump right into the details.

Estate Planning Goals

The most critical step when it comes to estate planning is establishing what you hope to achieve. Here are some goals of estate planning that can define the purpose of your estate planning process with clarity:

• Averting the need for a probate court to administer your assets
• Providing for your kids and other loved ones
• Securing your assets and making certain they are managed correctly
• Eliminating or reducing the taxes on your estate
• Creating a plan to manage your assets in the event of incapacitation
• Medical treatment guidance in the event that you’re not able to relay your wishes

Now that we’ve established that creating an estate plan is a wise decision towards securing the future of your beneficiaries and estate, here are some must-dos to ensure you go about it the right way. Let’s have a look.

1. Create an Asset List

Upon your demise, the entirety of your assets becomes your estate. Any assets not included in your estate plan still count as your estate and may eventually be distributed by the probate court as stipulated by state law.

Moreover, probate court proceedings can go on for months, and your beneficiaries may require to hire legal representation. You can choose an estate plan that passes your estate to your beneficiaries without the hassles of probate, saving both time and money.

Some of the common assets to include in your estate plan include:

• Cash and bank account
• Real estate
• Vehicles - planes, motorcycles, cars, boats
• Investments and stocks
• Life insurance policies
• Death benefits you’re entitled to
• Retirement annuities and accounts
• Businesses where you have an ownership interest

2. Establish Your Debts

Your demise doesn’t annul any pending debts and obligations. Usually, your estate is used to settle any debts you owe before they can be administered to your beneficiaries. In cases where your debts exceed your estate, your beneficiaries will have nothing left to inherit. Luckily, your creditors cannot pursue your beneficiaries if your estate is inadequate to cover your debts.

Debt doesn’t pass to your beneficiaries upon your death. However, it can significantly reduce or wipe out your entire estate. Establishing any and all debts will help your executor to manage your estate and ensure your beneficiaries hold realistic expectations of the same. For instance, your kids shouldn’t expect to inherit your $800,000 home if you are still owning a $1 million mortgage with the bank. 

Some of the debts to account for in your estate plan include:

• Credit cards
• Any mortgages used to purchase property or a home
• Business loans - if the business is included in your estate
• Financial obligations to spouses, whether former or current
• Any unpaid legal judgments or settlements

Note that the federal Fair Debt Collection Practices Act (FDCPA) allows debt collectors to contact and seek payment from persons they deem capable of repaying the debts of the deceased. These persons may include:

• Adult children
• Spouses
• Executors
• Guardians
• Administrators

3. Identify Your Beneficiaries

Most people create estate plans to ensure that their assets go to their loved ones upon their demise. Some even want some of their estate to go to a charitable organization or their church. If you list the people you want to help in order of their priority, your wishes will be easier to execute.

Prioritizing loved ones and organizations you want to help can be challenging, but it needs to be done. If you find out that you cannot distribute your assets to everyone you had hoped to, you could list your children first, followed by favorite relatives or a good cause such as a charitable organization. You can always alter your estate plan to include beneficiaries who were lower on your priority list if your financial state improves.

You may have to name respective guardians for incapacitated adults and minor children. You can even include a trust for underprivileged adults and minor children or even manage charitable donations to a cause of your choice.

4. Plan for Possible Incapacitation or Illness

Most people think an estate plan only lays out what should happen upon your demise. However, a good estate plan should also stipulate your wishes for the management of your finances and your medical care in the event that you’re unable to make decisions for yourself due to illness or something else.

Your estate plan can also address the following issues;

• Asset Management

If you want to give another individual the authority to manage your affairs in your place, you can give them power of attorney. If you put your assets in a living trust where you are still currently a trustee, you can appoint a backup trustee.

• Healthcare

Your estate plan can stipulate the measures you wish to be taken in your name when or if you are too ill to do it yourself. You can also state what you wish to be done for your end-of-life care in an advanced healthcare directive, also known as a living will. If you choose to grant someone healthcare power of attorney, they’ll be able to make medical decisions in your stead.

• Long-term Care

A good estate plan needs to cover all eventualities, including the possibility that you may end up in a long-term care facility or nursing home. You can plan for this by ensuring you’ll still be eligible for Medicaid or buying insurance for long-term care.

5. Decide If You’ll Take Out Life Insurance

If you have minor kids and other dependants, life insurance can be a vital aspect of your estate plan. Calculate how much life insurance you’ll need to adequately care for your dependants before you buy a life insurance policy.

For instance, a $700,000 life insurance payout sounds like much, but if you make $100,000 annually, that’ll only substitute your income for 7 years tops. Doesn’t sound like much, does it? And if you’ve got young kids, 7 years is barely enough for them to finish school. 

We recommend talking to a financial advisor or your estate attorney to calculate the best policy to address your dependants’ financial needs. It’s also important to note that life insurance benefits pass outside the legalities of probate or a will. As such, you should carefully name the individual you wish to receive your death benefit and update them on any changes in your life. If you don’t name a beneficiary, they can only receive all or part of your death benefit through court action. Such cases are expensive and lengthy, and success is not guaranteed.

If you want your death benefit to go to someone who cannot take care of their financial affairs, like minor children, you could create a trust for the benefit to pass on their behalf. That is because a life insurance policy cannot be directly passed to a child under the age of 18.

6. Plan for Estate Tax

Estate tax used to be a huge cause of headache a few decades ago, but the pressure has since eased with raised estate tax exemptions by Congress. For instance, individual assets valued at under $11.7 million were exempt from estate tax in 2021. Also, the 2017 Tax Cuts and Jobs Act (TCJA) reduced the maximum estate tax rate to 40% from the previous 55%.

If your estate exceeds $11.7 million, there are a few ways to reduce the estate tax your estate will have to pay. You can move some assets into trusts created to pass these assets to your beneficiaries. A trust is an independent entity, and as such, any assets you transfer to a valid trust will be exempted from your estate for tax reasons.

7. Documents Checklist

Once you’ve determined everything you want to address in your estate plan, you need to draft the relevant legal documents to ensure your wishes are fulfilled. These documents include:

• Property and title deeds
• Insurance policies
• Guardianship designations
• Financial power of attorney
• A medical power of attorney
• Trust agreement(s)
• A will

Additionally, you may want to create a document with crucial information such as how to access important documents on digital files and bank account passwords. You can entrust this document to a family member(s) or your executor. If they’ll require your social security number at some point, you can add it to this document. Please note that while this is not a legal document, it can prevent unnecessary hassle after your demise.

Estate planning involves creating legal documents that may need to stand up in a court of law. If you do not understand what documents you need and how they are drafted, it would be best to consult with an estate planning attorney in your area.