Estate Planning and Important Steps to Take

An estate is a legal entity formed at the time of an individual’s (“decedent’s”) death and consists of all assets. Essentially, an estate equates to an individual’s net worth, which is distributed upon a person’s death. This includes, but is not limited to: personal property, real estate, motor vehicles, boats, cash, and other items of value owned by the decedent.

Estate planning is assembling all of your assets, outlining your wishes, specifying your directives, naming your heirs, and pulling it all together into a comprehensive plan. Every adult should plan to do some level of estate planning. Not creating a plan leaves children and/or other beneficiaries facing many problems after a death, including legal hurdles, stress, extra costs, and other complications while simultaneously dealing with their grief.

In this article, we’ll discuss what components you should consider and the necessary steps to take. We’ll also explain how to obtain an employer identification number (EIN) for your estate, so its financial affairs can more easily be put in order.

1. Make a List of Documents You Need to Assemble

To start, make a list of all the important documents you will need to assemble. This list of documents typically includes wills, trusts, insurance policies, power of attorneys (POW), healthcare directives, guardianships, and other components. Once complete, your estate plan clearly outlines how you want your estate handled in the event of your death or incapacitation.

2. Create an Inventory of Assets

It’s common for people to believe only the wealthy need to do estate planning, but this is a fallacy. While a wealthy person’s estate planning might be more complex due to having numerous assets and holdings, almost everyone owns at least some belongings or valuable items they want to leave behind for their loved ones.

Create an inventory of your assets, including any tangible and intangible assets. When planning your estate, think about everything you own, such as homes, land, and other real estate holdings, ownership in a business, cars, boats, motorcycles, cash, bank accounts, retirement accounts, investments, jewelry, coin or stamp collections, art, clothing, and other assets.

It may sound strange, but you also need to list liabilities and debts in your asset inventory. This is because any money you owe will need to be repaid by your estate at some point, even after your death. Identifying debts and liabilities helps make things easier for your estate’s executor or administrator. This way, they can speed up the process and quickly settle debts before distributing assets to beneficiaries.

3. Plan for Familial Needs

After identifying items in your asset inventory, you’ll want to think about how to protect them so you can establish a plan to take care of your family after you’re no longer here to do so. To make a plan for familial needs, plan to:

• Create a will
• Establish trusts (be sure to learn about irrevocable, revocable, and all the other different types of trusts)
• Buy a life insurance policy with sufficient funds
• Parents should designate chosen guardians (and a backup guardian) for their minor children to ensure they are raised by someone they trust and who will follow their parenting preferences
• Make arrangements for any adult special needs children or other relatives being cared for

You also might want to consider consulting with a professional financial planner or attorney to help you establish a plan for your family plan. This way, you ensure you don’t miss any important details, making sure your family is well cared for after you’re gone.

4. Establish Power of Attorney Documents

In the event of your incapacitation, you’ll want a trusted person to make decisions on your behalf. There are many ways to establish power of attorneys (POW), but the two primary ones people elect to create are a medical power of attorney and a financial power of attorney.

Medical Power of Attorney

All individuals, regardless of age, should plan to outline their medical directives/wishes. No one likes to think about it, but it’s important to prepare for the possibility of incapacitation from an unexpected injury or illness. A medical power of attorney will ensure the person you choose can make healthcare decisions in accordance with your wishes. This person will follow any healthcare directives you establish (this is often referred to as a “living will”.)

Financial Power of Attorney

In the event you’re unable, you’ll want someone you trust to handle your money-related decisions and/or actions when you are unable. This includes making financial decisions, conducting money transactions, and/or managing property, to name a few examples of responsibility.

A medical power of attorney and a financial power of attorney can be one person or two separate individuals.

5. Double-Check Your Beneficiaries

Once all of your estate planning documents are in place, take time to carefully review your beneficiaries to ensure you didn’t inadvertently overlook anyone in your will or trusts.

• Ensure your heirs’ names are properly spelled
• Clearly outline which assets will go to which beneficiary
• Ideally, be very specific, so there is no confusion or conflict when your assets are being distributed.

In addition to your estate plan, you should re-check the individuals you have listed as beneficiaries on your bank accounts, insurance policies, retirement accounts, and any other relevant accounts. You also want to select contingent beneficiaries to inherit specific assets in the event your primary beneficiaries predecease you, and you did not have the chance to update.

Finally, be sure all beneficiary sections are filled in, leaving no spaces left blank in your account paperwork or online profile. If your beneficiaries are not selected, the state will most likely be the entity to choose them during probate. This decision may not be in alignment with your preferences, so be sure you select them yourself.

6. Routinely Review Estate Plans

Remember, life circumstances often change. You might get married, go through a divorce, remarry, or have more children. Take the time to make certain the people you want to take care of after you’re gone, are the ones actually listed in your documents and on your accounts.

When beneficiaries are left out , this can lead to bad feelings and conflict. For instance, if you had a first marriage, but later divorced and neglected to remove your ex-spouse when you remarried someone else, your first spouse would be the beneficiary and your new spouse would not receive any assets or insurance policy money. This is likely not what your wishes would be, so be sure to review everything periodically.

Additionally, as other major life events happen, such as having more children, adopting children, losing a loved one, getting a new job, losing a job, or other significant changes, you should review your estate plan.

While you don’t need to check your estate plan monthly, plan to reassess your plans when life changes or at least every 3-5 years. If necessary, revise your plan to accommodate your current situation and ensure everything is up-to-date. Keep in mind, even if your life circumstances do not change, state laws might be added or altered, which might affect your legacy wishes.

7. Obtain an EIN for Your Estate

No one wants to think or discuss their mortality, but it’s best to be proactive to preserve your legacy. Upon your death, your estate will become a legal entity, which means it’ll owe taxes and have other obligations. Your Executor, Administrator or Personal Representative will need to obtain an EIN.

An EIN empowers the estate’s representative to open a separate bank account for your estate so they can assemble assets and pay off any debts or expenses when settling the estate. The tax ID is also required to file a tax return for the estate.

How to Obtain an Estate EIN

To obtain an EIN for an estate, you must file SS-4 “Application for Employer Identification Number” online, by fax, via USPS, or by having the assistance of a professional. Information to include is as follows:

• Decedent’s first, middle (optional), and last name
  • Note: Be sure the decedent’s name is an exact match to the IRS and Social Security Administration’s files
• Name of executor/administrator (or personal representative)
  • First, middle (optional), and last name
  • Full address (no PO boxes permitted)
  • Social Security number
• The date the estate was established and funded
• Address of the estate
  • Note: if the address changes, submit Form 8822 to update

Estate Planning is an Important Task

Mortality and incapacitation are two difficult topics to think about, but doing so is necessary. Due to this, many people find estate planning to be stressful, complex, and/or an overwhelming set of tasks. As a result, it is common for individuals to procrastinate or inadvertently miss important steps.

Generally speaking, by age 30, you should at least have a basic plan. However, you can start as soon as you turn 18 to, at a minimum, stipulate your healthcare directives. You definitely want to have your estate plan in place as you approach your 50s.

Starting early helps to ensure important details aren’t overlooked. For instance, having a will, trusts, and insurance in place will help ensure your final wishes are properly carried out.