The 6 Step Estate Planning Checklist

September 07, 2017

Estate planning is an essential part of the financial planning process. Yet, it is often the most overlooked element of a basic financial plan. Only 4 out of 10 adults have wills and trusts in place. But an estate plan is so much more than that.

You may be thinking you don’t need to worry about this because you don’t have an “estate,” or you’re too young to worry, or you don’t want to pay for the necessary documents, or that simply thinking about estate planning will somehow alter the universe in a way that speeds up your checkout date on Planet Earth.

I understand. There are far more pleasant things to think about than death and dying. In fact, I used to think the same thing until that life changing event occurred about a dozen years ago – my wife and I found out we were expecting a child.

What’s your “aha moment?”

The birth of a child is a common “aha moment” that can trigger a desire to get your estate planning affairs in order. But it’s not the only one. Other life events could be the death of a loved one, legacy planning after accumulating wealth, or health concerns that create a need to make sure you have somebody there to make important decisions on your behalf.

But really, don’t be like me. You shouldn’t wait for some major life change to spark the need for an estate plan. That’s because the word “estate” can be misleading when it comes to this type of financial planning.

Estate planning deals with more than just who gets your stuff when you die and doing it properly can save your family and friends a lot of headaches should your time come too soon. Unfortunately, most people mistakenly think they need to have a family or significant wealth for an estate plan to matter. That’s not true, it matters even for single people who never plan to marry or have kids.

Here is a simple estate planning checklist to help get you started.

Step 1: Determine what matters to you. You can start creating your estate plan by establishing meaningful goals. Here are some important questions to get you started:

  • What do you want your estate plan to accomplish?
  • Are you concerned about choosing an executor to follow through on your final wishes?
  • Do you need to name a guardian for your children?
  • Is charitable giving in your current and/or future plans?
  • Are you seeking ways to avoid probate?

After you’ve established the “why” behind your estate planning, take action and avoid the dreaded procrastination monster. This can shelve your plans for months (or years) unless you commit to sticking with a few personal deadlines. You can use this Personal Estate Planning Worksheet to help you get organized and write down some of your goals.

Step 2: Get organized and assess your overall financial situation. It never hurts to focus initially on your total financial wellness. Part of this process could involve completing a net worth statement that includes a list of your assets and liabilities. Creating a summary of your financial resources puts you in a better position to determine where you stand. It also helps you start thinking about who you want to eventually receive your assets after you pass away.

Step 3: Have basic estate planning documents created. This is where your estate plan gets transitioned from good intentions to an actual plan. The important documents below will allow you to state your wishes for how to distribute assets when you die. You also can use wills to name guardians for your children.

You can also decide who you want to make important financial or medical decisions if you are ever unable to make them yourself. These documents should usually be part of every estate plan:

Step 4: Determine if you need advanced planning strategies. Life can get complicated. If your living situation has a few complications due to divorce, you have a loved one with special needs, or you have concerns about heirs’ ability to manage wealth, you may need to use a document which gives you more control. Trusts are legal arrangements that allow you to determine how and when property is distributed to your heirs. In certain situations, a trust may be necessary to maintain even more control over the distribution of your estate. If funded properly, many trusts can also help you avoid probate (wills are subject to probate).

Step 5: Update your beneficiary designations and title assets appropriately. Many people think that once a will has been created that their estate planning work is done. That’s far from the truth, especially considering the fact that the will only controls the distribution of assets that are subject to probate, which is the formal process of paying off debts and distributing property. Depending on the state you live in, probate can potentially be an expensive and time-consuming process.

Keep in mind that not everything transfers through probate, including your 401(k) or any IRA accounts you have. Therefore, it’s important to identify assets that do not pass to others by will. These are often called will substitutes and include any accounts with beneficiary designations such as insurance policies, retirement plans, IRAs, and annuities. Any jointly owned property or accounts bypass probate as well as accounts designated as payable on death (POD) or transfer on death (TOD).

Step 6: Find a professional or DIY approach to put your plan into effect. Not sure where to turn for help in creating your important documents? See this guide on How to Choose an Estate Planning Attorney. You may also check with your employer to see if they provide a prepaid legal service or free online document preparation.

If not, sites like LegalZoom and Nolo provide online tools to help get these documents created, which is important if you are concerned about the costs of hiring an attorney or have a fairly straightforward plan. Just remember that if you don’t have these important documents in place you still have an estate plan—it just happens to be a plan based on the intestacy laws of your state and probably isn’t how you want your stuff to go.

Estate planning may not seem like a top priority, but it is an important aspect of every complete personal financial plan. It’s also a great way of aligning your financial decisions with your life goals and the things that matter the most to you. That’s why it’s necessary to personalize your goals and create a basic plan to protect the people, organizations, and things you care about the most.

Want more helpful financial guidance, delivered every day? Sign up to receive the Financial Finesse Tip of the Day, written by financial planners who work with people like you every day. No sales pitch EVER (being unbiased is the foundation of what we do), just the best our awesome planners have to offer. Click here to join.