Introduction
Estate planning isn’t just for the wealthy, and it goes far beyond planning how to transfer your assets. A good estate plan should address a number of topics, such as end-of-life healthcare contingencies, funeral arrangements, settling your liabilities, distributing your assets, and leaving a legacy. To get your affairs in order, here are 10 things to take care of before you die.
1. Prepare for End-of-Life Contingencies
If you become incapacitated—perhaps due to an accident, illness, or simply as a result of old age—you will need someone to speak for you and act on your behalf. This individual will need authorization to access your financial accounts, to pay your bills and manage your assets, and they may need the authority to speak with your doctors to make important healthcare decisions. To assign someone access to your finances, issue a durable power of attorney; to confer the authority to make important medical decisions, issue a healthcare power of attorney. You can provide this individual with full access, or you can limit their power to certain assets and situations. You also have the right to rescind a power of attorney, so you’re not necessarily locked in once you issue one.
In addition to conferring a power of attorney, you should also create a living will (known as an advance healthcare directive). A living will documents your healthcare preferences so doctors have something to refer to in case you are unable to communicate important healthcare decisions. Your living will can be as broad or as detailed as necessary, and will usually cover topics like palliative care (treatments to alleviate pain and suffering), resuscitation, and artificial life preservation. This document is separate from and not to be confused with your last will and testament.
2. Make Your Funeral and Burial Arrangements
Write a Letter of Instruction to your family regarding your preferences for a funeral and burial. If possible, look into making pre-need purchases such as a burial plot and casket. If you wish to be cremated, make this intention clear and include appropriate instructions on what should be done with your cremated remains. You can also use the Letter of Instruction to indicate if you wish to be an organ donor. Most people include this information in their will, but it’s helpful to leave a separate Letter of Instruction in case your will isn’t opened until after your funeral.
3. Nominate an Executor to Handle Your Estate
Just as you’ll need someone to handle your affairs before you die, you’ll need someone to handle your estate when you die. This individual is known as the executor, or personal representative. They will be tasked with gathering your assets, settling your liabilities, distributing your assets, and (if applicable) other probate responsibilities. Most people turn to their spouse or an adult child for this role, but you can choose anyone you trust, including friends, business associates, or an attorney. Clearly identify your executor in your will, and name a backup executor in case the primary executor is unable to fulfill the obligation.
4. Compile Your Assets and Liabilities
Before you start on your will, it helps to get a clear picture of your assets and liabilities. Start by taking an inventory of your liquid assets, including cash, bank accounts, brokerage accounts, retirement accounts, and precious metals (gold, silver, etc.). These should be easy to value using your most recent account statements. Be sure to include the value of any life insurance policies, and any other insurance policies that may carry a death benefit (accident, traveler’s, homeowner’s, health, auto, etc.).
Next, compile a list of your illiquid, physical assets, including real estate, vehicles, jewelry, collectibles, and other personal property. Regarding personal property, it helps to walk through your house and jot down personal possessions worth more than $100. Look for computers, televisions, guns, furniture, power tools, antiques, etc. To the best of your ability, estimate the value of these possessions. Don’t worry about hiring a professional appraiser, as your executor will probably have to do that when you die.
Once you have an inventory of your assets, move on to your liabilities. Gather account statements for credit cards (both with and without balances), mortgages, auto loans, home equity lines of credit, student loans, and other personal loans or debts. You may want to request a copy of your credit report to check for any accounts that you missed.
5. Choose Your Beneficiaries
Start by making a list of all your would-be heirs. These are people who would normally stand to inherit your assets under intestate succession laws (your spouse, children, parents, and siblings), as well as anyone who may feel entitled to an inheritance from you (extended family, grandchildren, or business partners). Be sure to include any organizations and charities you may wish to donate to. Next, whittle the list down to those who will actually receive an inheritance. These will be your beneficiaries. To avoid ambiguity, collect identifying details for your beneficiaries, such as birthdates and addresses.
6. Plan how to transfer your non-probate assets
Most people haven’t personally experienced probate court, but its universally understood that probate can be a long and expensive process. Fortunately, there are several ways you can minimize your estate’s need for probate, and in some cases, you can skip it altogether. For starters, there are certain assets that can automatically transfer to your beneficiaries by contract, outside of probate. These include:
- Bank or brokerage accounts with transfer-on-death (TOD) or payable-on-death (POD) beneficiaries
- Retirement plans with a designated beneficiary
- Life insurance policies with a third-party beneficiary
- Property held in joint tenancy or as tenants by the entirety
- Assets held in a trust
Do not assign these assets in your will, as the contracted beneficiaries will trump any instructions in your will. Instead, check each account to ensure that you have the right beneficiary listed. When it comes to bank and brokerage accounts, many of these needlessly pass through probate when a simple TOD or POD designation can avoid the hassle.
7. Prepare how to transfer your probate assets
These are the assets that you’ll want to address in a will or trust. Assets subject to probate include:
- Individual bank and brokerage accounts
- Accounts where you are the beneficiary
- Personal property such as vehicles, jewelry, and collectibles
- Real estate held individually or as tenants in common
8. Draft a Will and/or Trust
Once you have an inventory of your assets and liabilities, a list of beneficiaries, a plan to distribute your assets, and you’ve selected an executor, it’s time to formalize these details with an official will. When you draft the will, state that it is your last will and testament (meaning it nullifies any pre-existing wills), and that you are over the age of 18, of sound mind, and not under duress. Include identifying information such as your date of birth, address, and social security number. At the bottom, sign and date the will. Depending on your state’s law, you may need to have the document notarized. You’ll also need to have 2 – 3 witnesses sign your will. Most states won’t let your beneficiaries serve as witnesses, but interested witnesses are permitted in Arizona (though the practice is not recommended).
9. Establish a Trust
In addition to a will, you can establish a trust to allow your assets to bypass probate. A trust requires three things: a trustee to manage the assets held in trust, a beneficiary to receive the assets when you (the grantor) die, and any special instructions on how the assets should be administered. Assets that you transfer to the trust during your lifetime will pass to the intended beneficiaries without going through probate. You can also use the trust document to place stipulations on your gifted assets, such as waiting to transfer the gift until the beneficiary turns 18, or that the assets can only be used for higher education.
If you choose to use a trust, don’t forget to actually transfer assets to your trust. It’s not enough to simply draft the trust agreement. Transferring assets to a trust can be tricky business, so check with your estate attorney to see if they have a secretary or special team to assist you. Be careful not to leave any applicable assets out of your trust, as they will be subject to probate even if they were intended to be in the trust.
10. Review Your Estate Plan Regularly
Once your estate plan is complete, take the time to review your plan regularly. Most estate attorneys and financial planners recommend holding an annual review, though you shouldn’t wait until your next scheduled review if you experience a major life event (birth of a child, purchase or disposition of a major asset, a death in the family, etc.).
Call our Arizona Estate Planning team at (480)467-4325 to discuss your case today.