What Are the Basics of Estate Planning?

When a person becomes a legal adult, it is a good idea to begin thinking about an estate plan. Such a plan is vital to ensuring the proper distribution of assets if the individual becomes incapacitated or passes away. The best way to begin the process is to hire a skilled estate planning attorney to help in young adulthood, and then update the estate plan every five years, or when major life events occur.

How Do You Create an Estate Plan?

There are a few basic steps in the estate planning process. If you become familiar with them ahead of time, it can help make the planning process go more smoothly. Here are seven steps to consider.

  1. Take Inventory Even if an individual has a meager estate, it is likely they want their assets to be distributed according to their wishes. Common assets in a person’s estate include:
    • Business ownership
    • Health savings accounts
    • IRAs and retirement plans such as a 401(k)
    • Life insurance policies
    • Mutual funds, stocks, and bonds
    • Savings accounts, checking accounts, and CODs
    • Collectibles
    • Cars, boats, motorcycles, and other vehicles
    • Real estate, including land and homes

    After compiling a list of assets, a person should estimate their worth as accurately as possible to ensure their possessions are distributed equitably to their loved ones. Statements from financial accounts and outside valuations, such as home appraisals, can be helpful at this stage.

  2. Evaluate Family Needs After an individual has an idea of the value of their estate, it is important to consider how their family is going to be provided for in the event of their death. This may include naming a guardian and documenting their wishes for the care of their children, as well as making sure they have enough life insurance.
  3. Create Legal Directives A comprehensive estate plan should include certain legal directives to ensure the individual’s wishes are carried out if they are unable to do so. Such directives include:
    • Limited power of attorney. This is often the choice for someone who may become incapacitated for a brief time and does not want to turn everything over to another person.
    • Durable financial power of attorney. This document gives another person the ability to manage an individual’s finances if they are unable to.
    • Medical care directive. This document, or “living will,” allows an individual to pre-plan for their medical care in case they become unable to make decisions on the matter.
    • Trust. A revocable trust is a means of designating portions of an individual’s estate to go toward certain things while they are alive, and they can be changed at any time. An irrevocable trust is one with terms the individual cannot revoke or change once it is created.

    It is crucial to keep in mind that powers of attorney may have control over one’s finances, and their very life, so it is important to use care when selecting these individuals.

  4. Know the Beneficiaries It is wise to review all documents to ensure they spell out an individual’s wishes, as they are not necessarily all-inclusive. This includes the following:
    • Checking insurance and retirement accounts. These plans commonly have beneficiary designations written into them, so they must be updated at times. Such beneficiary designations may legally outweigh contradictory designations in a person’s will.
    • Making sure the proper loved ones are named. Oftentimes, individuals forget that beneficiaries on certain accounts were put in place many years before. For instance, if an individual passes away and their ex-spouse is still named as the beneficiary of a life insurance policy, their current spouse isn’t entitled to any of the payout upon their death.
    • Ensuring no beneficiary sections are left blank. If this occurs, state laws typically dictate who will receive the asset in probate court.
    • Naming contingent beneficiaries. This is a vital step because these individuals act as backup beneficiaries if the primary beneficiary has passed away and the individual has not updated their estate plan.
  5. Be Aware of Related Tax Laws One purpose of an estate plan is to minimize inheritance and estate taxes. Keep these details in mind:
    • Some states impose inheritance taxes that require beneficiaries to pay the government for assets they inherit.
    • Federal estate taxes only apply to larger estates. For example, estates valued up to $12.06 million are exempt from these taxes in 2022.
    • When an estate is valued below the federal estate tax threshold, some states levy taxes on the estate.
  6. Choose a Skilled Professional for Help There are estate tax professionals and attorneys who specialize in estate planning. Some of the reasons individuals choose to enlist the help of these professionals may include:
    • They have a large or complex estate. Some situations can become complicated when it comes to estate planning, but knowledgeable professionals can assist with concerns such as non-familial heirs, business issues, and specific childcare wishes.
    • The individual is worried about errors. Many people have doubts about the likelihood that their wishes are going to be carried out properly. For this reason, it is always best to consult an estate planning attorney to ensure all details are covered, and steps have been taken to minimize any potential tax penalties.
  7. Remember to Update Plans When a person experiences important life changes, they should reassess their estate plan. This may seem like a daunting task, but it is usually not very difficult once the plan is already in place. Some of the reasons individuals update their plan include:
    • Losing a job or changing jobs
    • Losing a loved one
    • Having children
    • Getting married or divorced

    A person should review their estate plan every three to five years, even if they haven’t gone through any major changes because laws affecting estates sometimes change.

Choose an Estate Planning Attorney to Guide You Through the Process

If you have decided to begin working on a plan to ensure your wishes are properly carried out if you become incapacitated or pass away, it is crucial to work with an experienced attorney. After all, you are making decisions that may affect your own medical care, your finances, the care of your children, and what you leave to the people you care about. Paul V.L. Campo, Attorney at Law can walk you through the process and help you attain peace of mind. Visit our website today.


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