7 Important Things You Need to Know About Estate Planning & Steps You Should Take

By Chika


Last Updated: February 28, 2022



Without estate planning, we leave unanswered questions about how to settle our affairs, life for those we love could be even more difficult.

That’s why answering questions now—and formalizing them in an estate plan—is an important step that shouldn’t wait. You don't have to be rich to need estate planning. Your estate includes everything you own, and it can be any size. This why it can be worth taking time to plan for what happens to it.


What is an estate plan? 

Estate planning is the process of deciding who will inherit your assets and take care of your duties after you die or become incapacitated. One purpose is to guarantee that assets are distributed in such a way that estate, gifts, income, and other taxes are minimized.

Estate planning can help you build a foundation you can tweak when your personal and financial circumstances change. The most important topic to consider is how you want your assets transferred if you die or become incompetent.


Benefits of having an estate plan

Several benefits come with having an estate plan. These include: 

  • Assists you in identifying someone you can trust to make decisions for you if you become unable to do so
  • Make a plan for who will look after your minor children if you are unable to
  • Aids in the reduction of estate and other transfer taxes
  • Assists with the administration and planning of probate, the court-supervised procedure for valuing your estate, settling debts, paying taxes, and transferring assets to your heirs


Ways of planning your estate

1. Asset titling

Joint titling of assets with rights of survivorship will leave the assets to the joint owner outside of probate. But unless the joint owner is a spouse, joint titling may expose the assets to unwanted risk.

The surviving owner is not legally compelled to dispose of such assets according to instructions given in a will or trust. Also, if the instructions are followed, the surviving owner may incur gift tax repercussions. Please consult with your attorney to ensure that any titling is in line with your overall estate strategy.


2.Title with care

Titles have specific legal meanings and typically take precedence over wills and trusts.

Because your assets may have been titled years ago when you first opened an account or made a purchase, it’s important to check and make sure that titling continues to reflect your intentions.


3. Naming beneficiaries

When it comes to assets like retirement accounts, annuities, or insurance policies, you'll be asked to name your beneficiaries - blood relatives or otherwise. However, for non-retirement accounts, you wouldn't need to disclose this information because these assets pass according to your will's distribution provisions.

If you own a revocable living trust, you can retitle your non-retirement accounts to your trust's name (if you have one) or name a trust as a beneficiary. You should seek your attorney's counsel before naming beneficiaries on non-retirement accounts to ensure that they are consistent with your will and estate plan.


4.Powers of Attorney

You can also use a Power of Attorney to appoint someone to act on your behalf to execute our estate on your behalf. A POA might be drafted to take effect immediately or to activate only if you are unable to make decisions for yourself. Once signed, a durable POA goes into effect. At the time of death, all POAs will expire.

There are several types of POAs that you can use to  authorize someone to act on your behalf:

  • Financial POAs: These can be created for your bank or brokerage accounts. Make sure that any financial POAs are drafted to meet your financial institution’s requirements.
  • Medical POAs: These are used to name a trusted person to make medical decisions for you. 
  • Medical directives: Though these are not technically POAs, they can be used to state what type of medical treatment you do or do not wish to receive if you are too ill to direct your care.


5. Life insurance

Life insurance is a critical part of estate planning. Here are some good reasons you should consider taking out a life insurance policy for your dependents

  • Support to loved ones: In the event of your death, life insurance gives a death benefit that can assist your loved ones, replace your income, pay off the mortgage, or cover your children's school.
  • Terminal illness: If you become terminally ill, some policies allow you to obtain a portion of your policy benefit throughout your life. Insurance funds can assist you and your family in covering unexpected bills or medical costs at a time when you and your family are most vulnerable.
  • Estate taxes: Insurance proceeds can provide liquidity if your estate has to pay estate taxes.
  • Keep your business afloat: A life insurance policy can be used to settle outstanding business loans, offer financial stability after the sudden death of a key employee, or secure funds for a surviving owner to fund a buyout. 


6. Will

A will specifies how you want your assets distributed, including items with both financial and sentimental value.

By creating a will, you can arrange for your possessions to be distributed and managed the way you want. Even though some assets will pass to your designated beneficiaries or joint owners, repeating the instructions in your will can help prevent misunderstandings with other family members. 

Benefits of having a will include:

  • Appoint an executor: With a will, you can appoint an executor to administer your estate and the probate process, which is a court-supervised process for validating your will and distributing your assets.
  • Choose a guardian for your kids: You can appoint a guardian for any minor children you have.
  • Give instructions on how debts, taxes, probate fees, and other expenses should be paid.
  • Specify how to pay for a family member's living expenses during the probate process.
  • Assign assets to a trust for the benefit of family members or other beneficiaries.
  • Appoint someone to look after an incapacitated beneficiary's finances.

The 5 Key Components of Estate Planning & Why You Need to Know 


What you need to know when preparing a will.

When drafting your will, always ensure that it meets state-specific requirements, as this would determine its validity and the legality to enforce it. You can have your will prepared or reviewed by a local estate planning attorney.


7. Trusts

Depending on your situation, you may want to consider setting up a trust to indicate how you want assets distributed, and who you want to carry out your wishes.

A trust can be used to manage your assets if you become incapacitated or for your child if (s)he is a minor. Trusts can also be used to reduce your estate tax bill and distribute assets without the cost, time delay, and publicity of probate.

You can set up a trust to hold many assets such as:

  • bank account deposits
  • real estate
  • securities
  • mutual fund shares
  • ETFs
  • limited partnerships
  • life insurance
  • personal property


What is a living trust?

A revocable living trust allows you to transfer asset ownership from your name to the trust while also naming yourself as the trustee. It is the most common type of trust used by people.

A living trust grants you have the same access and control over your assets after you set up the trust as you did before. Assets can be bought, sold, traded, and moved in and out of the trust. You also have the assurance that your wishes will be carried out in the event of your death.

In the event of your death or if you are incapacitated, the trustee you named as your successor. They take over the trust and manage it, paying taxes, managing assets, and distributing distributions to beneficiaries according to your instructions.


Choosing a trustee

A vital aspect of estate planning is naming a successor trustee to handle your trust when you are no longer able to do so.

The ideal applicant will be able to carry out all the trust's provisions, managing the trust's assets and investments. As well, they perform several administrative tasks, such as record-keeping, reporting, and taxes, all while maintaining an unbiased relationship with the beneficiaries.

Selecting a successor trustee can be done in one of three ways. You can name an individual trustee, such as a family member or close friend, or a professional–corporate trustee, or a hybrid of the two, naming co-trustees who are both individuals and corporations.


Steps to drafting an estate plan

Everything you own, no matter how insignificant, is considered your estate. Taking inventory of what you have is the first step toward figuring out how to effectively protect it. To get started on your estate plan, follow these steps:

1. Take inventory

  • Make a list of your home's value and other real estate, as well as cars, jewelry, artwork, and other tangible possessions.
  • Get your most recent bank, brokerage, and retirement account statements together.
  • Include the location of any safety deposit boxes or safes, as well as the contents of any of them.
  • Make a list of all of your insurance plans, including the cash values and death benefits.
  • Make a list of all your debts, including mortgages, credit cards, and other loans.


2. Draft your estate plan

Prepare to meet with an estate planning attorney.

Some of the issues which are worthwhile considering when planning your estate with an attorney are: 

  • Who should inherit your assets, and in what proportions?
  • Who should care for your children if they are minors? 
  • How much should you budget for your children's care and education? 
  • Who should manage your financial affairs if you become incapacitated?
  • Who should be responsible for distributing your assets?


Implement your plans

Once you have answered the pertinent questions outlined above with the guidance of your attorney, it's time to take action.

This implies titling assets into the proper form of ownership, making appropriate beneficiary designations, and providing for asset management, if needed.


Update regularly

As time goes by, there may be a need to make adjustments to your estate based on changing conditions.

As such, you must review and update your documents and accounts as life events or changes in laws dictate.

Photo by Sarah Medina on Unsplash


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