The Do’s and Don’ts of Estate Planning

Quick Answer

Estate planning is deciding now who will inherit yourassets when you pass away or become incapacitated. Learn these 10 do’s and don’ts so you make the most of creating your estate plan.

A mother and daughter smile together while sitting on the couch.

Estate planning is the process of documenting how you want your affairs handled when you pass away or become incapacitated and naming who will eventually receive your assets. It involves taking action in advance to ensure your wishes are carried out on your terms.

However, an estate plan isn't always easy to prepare and finalize, and there are a few do's and don'ts you'll want to consider—sooner rather than later.

1. Do Draw Up a Will

A last will and testament specifies how you wish to distribute your personal and real property after you pass away. If you don't draw up a will, the court may distribute your assets, and that may not go according to your wishes. If you have substantial or complicated assets, consider also creating a living trust to help distribute your assets without going through probate, a time-consuming legal process. When drafting your will or trust, you'll want to appoint an executor or trustee to ensure your wishes are carried out, and name a guardian for your minor children (and pets if you choose).

2. Do Choose Your Beneficiaries

If you designate beneficiaries for your assets—cash, bank accounts, stock and bonds, real estate and other items of value—you are ensuring your assets are distributed to the people, companies or charities of your choice. If you don't name a beneficiary for each asset, any funds could be delayed in probate, and the person you name to handle your estate might face a pile of paperwork.

3. Do Seek the Advice of an Estate Planner

You may feel that your bases are covered or that your estate isn't complicated. Still, it can be a good idea to seek the advice of a professional estate planning attorney to ensure you've completed all recommended measures. Estate planners can help you draw up living trusts, wills and other legal documents to create a thorough plan.

4. Do Make a Living Will

A living will, also called a health care or advance directive, differs from a last will and testament. It stipulates how you will receive medical treatment if you can no longer make these decisions on your own.

5. Do Designate a Durable Power of Attorney

A durable power of attorney (POA) clearly outlines who can make decisions on your behalf regarding your property and finances if you cannot. If you don't have a living will, naming a durable POA for health care can make medical decisions for you if you cannot.

6. Don't Procrastinate

Estate planning may seem like something you'll tackle sometime in the future, but in reality, there is no better time than now. That's because unexpected things happen, and you'll want to create a plan when you're thinking clearly and able to make decisions thoughtfully instead of under pressure or not at all. If you have children or others who depend on you for their livelihood or care, having an estate plan is critically important.

7. Don't Forget to Choose a Legal Guardian

You may not want to think of a future for your children where you're not a part of their lives. But should that happen, you'll want to be sure they are well taken care of by a legal guardian you select, at least until they reach the age of 18. The legal guardian you choose can be a close relative or friend you trust to care for your children.

8. Don't Overlook Retirement Accounts, Stocks, Bonds or Life Insurance

Creating a plan for your estate goes well beyond just your home and the money in your bank accounts. Estate planning includes all of your assets: your car, stocks and bonds, other real estate, retirement fund, life insurance policy and more.

9. Don't Skip Over Items of Significant Value

If you have artwork, collectibles, expensive jewelry or the like, you'll also want to be sure these items go to someone of your choosing as they are also a part of your estate. This is especially true if one of your children or a relative has indicated a sincere interest in something of yours.

10. Don't Forget to Update Your Plan Over Time

Whenever a major life change occurs, like a marriage, divorce or windfall, you'll want to update your estate plan to account for any financial changes and ensure your wishes are still carried out. You may also want to review your documents from time to time to ensure they're current. Some experts recommend reviewing your estate plan at least every three to five years or when there's a major life event.

Do You Need an Estate Plan?

It's estimated that 50% to 60% of Americans don't have a will. That's not surprising given that it can be an uncomfortable topic to think or talk about. Even if your estate is rather simple and straightforward, however, creating a plan will save your loved ones from the hassles of probate and other expenses. It can also help avoid family fights and give you the peace of mind.

Although both a will and an estate plan outline your wishes regarding who will eventually receive what you own when you pass away, there are differences between the two.

An estate plan includes your will, but is significantly more in-depth. It typically outlines how your assets will be handled when you pass away and also while you're still alive but potentially unable to make decisions on your own. It also can let you specify how you will receive medical treatment if you become incapacitated and may include a living trust to speed up the process of distributing assets when you die. And it saves your loved ones time and hassle at a time when they may be emotionally fragile.

How to Create an Estate Plan

Creating an estate plan may seem arduous, but it doesn't have to be. If you employ an estate planning attorney, they can help guide you through the process. To get started, follow these simple steps:

  1. Make a list of all of your assets. Include everything from real estate investments and vehicles to stocks, bonds, life insurance and personal possessions.
  2. Decide who your beneficiaries will be. This may be your spouse, partner and your children, but it can also sometimes include a business, church, charity or close friend.
  3. Create a will. A will states who will get what and when. You can typically either hire a lawyer to help draft your will or go online to sites like LegalZoom, LawDepot, Nolo, or Trust & Will.
  4. Decide on a guardian. If you have children under 18 or a beloved pet, pick a guardian to care for them.
  5. Specify your directives. These might include a durable power of attorney and medical care directive.
  6. Sign all of the documents. Depending on where you live, you may have to sign in front of witnesses and a notary public. It's worth noting that your witnesses cannot be beneficiaries or your financial agent.
  7. Tuck it away in a safe place. Stowing your estate plan under your bed or between your mattresses won't safeguard your documents in case of a fire, so store documents safely away in a fireproof safe or off-site at your local bank or attorney's office.

A Plan for Life

Preparing a plan for your estate can be uncomfortable. But if you consider the time
you put into planning for a vacation or buying a car, planning for your estate should be an even bigger priority—even if you're still in your 20s. Without a plan, managing the affairs could have a long-lasting (and potentially costly) impact on your loved ones. And that's not the kind of legacy you probably want to leave.

If you're uncertain how to proceed, reach out to a financial advisor, estate planning attorney or tax professional to avoid mistakes and to ensure you comply with state and federal laws.