Estate planning basics

Let's face it. Nobody wants to spend time planning for when they're gone.

But what happens if you don't? Without a plan in place, you don't get to choose who gets everything you've worked for your whole life. If you want to be the one making those decisions, then you need an estate plan. And when there are so many factors outside of your control, it's critical to spend time planning for the things we can control.

What's estate planning?

Estate planning is the process of creating legal documents to specify how and by whom your assets will be handled in the event of your passing or if you're unable to make decisions for yourself. Many people think that having a will is all that estate planning entails. But it may also involve setting up a trust, and it certainly includes selecting beneficiaries for retirement accounts and life insurance policies, as well as how you title ownership of your assets. 

Here are a few potential foundational documents you might want in your estate plan:

• Simple will/Complex will
• Revocable living trust
• Financial power of attorney/Health care power of attorney
• Living will/Advance medical directive

Create an inventory of your assets

First, look at all your assets and their value. You can use our Personal Financial Inventory worksheet (PDF) to take inventory of all your investments, properties, insurance benefits, and other assets. Share it with your family and others helping you, such as your attorney or financial advisor. It's important to put aside any short-term hesitancy to ensure you have a clear plan in place. And remember: Taking inventory of your estate isn't a one-and-done job. You should review your assets every few years and update your plan for any changes that may have occurred.

Consider the basic components of an estate plan

After you've taken inventory and have a sense of what's in your estate, think about how to protect the assets and your family after you're gone. You can start with the documents listed below, but you may also want to consult an attorney or financial advisor to ensure you have what you need for your situation.

Simple and complex wills

Many clients already have a will, which is a set of instructions explaining how property owned in your name should be distributed after your passing. It also names an executor and a guardian if needed. This type of will only takes effect after your death.

Since not all assets are distributed through a will, be sure to review your beneficiary information on insurance policies and retirement plans periodically to make sure everything is up to date. One common mistake is when there's been a divorce and the ex-spouse is still the beneficiary of a client's retirement account. In addition, it's important to make sure any jointly owned assets are titled the way you want, because how assets are titled may take precedence over instructions in a will. 

Revocable living trust

One often overlooked estate planning tool is a trust—they can work for many different income levels. Trusts offer more control and privacy than wills and can help make your estate plan more flexible.

Different types of trusts are available to suit various situations, including:

• Blended families.
• Assets being passed to grandchildren.
• Children with special needs.
• Money meant for specific uses.
• Assets being passed to several inheritors (like homes or businesses).
• Continuity of management during incapacity.
• Tax planning.

Financial and health care powers of attorney (POAs)

If there comes a time when you can't make decisions for yourself, it's important to have POAs in place. A POA is a legal document granting a person you trust the authority to act on your behalf. A financial POA manages decisions surrounding your finances, while a health care POA handles decisions regarding your medical care.

Living will and advance medical directive

A living will outlines your preferences concerning medical treatment in terminal situations. Unlike a health care POA—which applies to other areas of medical care—a living will only details instructions concerning end-of-life care.

Ensure your wishes are followed if you can't manage your affairs

One of the most sensitive topics to discuss with clients is what will happen if they become unable to manage their estate plan—whether temporarily or permanently. It's important to have a plan in place so your loved ones can carry out your financial and medical wishes. Having honest conversations now can help provide peace of mind for everyone.

In many cases, people only think about wills when it comes to estate planning. But titling assets, naming beneficiaries, creating trust documents, designating a health care POA, and having an advance medical directive are also vital parts of estate planning. And they should be done with knowledge and care.

Already have an estate plan?

Now might be a good time to review it. An estate plan isn't something you can set and forget. Over time, you want to make sure your intentions haven't changed and you've included the right people. Has there been a marriage or divorce? A birth? A change to your financial situation? A change in domicile or residency?

• If it's been 5 years or more, it's time to see if any updates are warranted.
• If it's been less than 5 years, it's worth checking whether changes to tax laws could affect your plan.
• If you've experienced a major life event, it's worth revisiting your plan.

Estate planning is easier with an advisor by your side

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Call 855-443-1650

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Already a client?

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Help make sure taxes don't eat into your estate

When tax laws change, review your portfolio to see how it might be affected. Arming yourself with an effective tax strategy can help you avoid costly mistakes that could eat into your estate. Your strategy could include:

• Planning for state estate taxes. In addition to the federal estate tax, several states levy their own estate and inheritance taxes. For instance, 12 states and the District of Columbia have a state estate tax, and 6 states have an inheritance tax. As of 2024, Maryland is the only state that levies both. While estate taxes are only collected from a small percentage of extremely wealthy families (assets that exceed $13.61 million per person in 2024), inheritance taxes can be collected from anyone who lives in a state that levies them. See the map below for details.
• Transferring some or all your assets to take advantage of the increased exemptions in advance of the December 31, 2025, change that lowers the estate and gift tax exemption to $5 million per individual (plus an inflation adjustment from 2018). If you know you're going to leave some money to loved ones or important causes, you can maximize what they receive by making gifts during your lifetime. You can:
  • Give money or property to family members or others. You can make annual gifts of up to $18,000 per gift recipient (married couples can gift up to $36,000 per recipient) to as many people as you want without paying gift taxes.
  • Give an unlimited amount to charity.
  • Contribute to a loved one's 529 education savings plan. There are special tax rules that make this a powerful estate planning tool. For example, you can make 5 years of contributions at one time without incurring a federal gift tax.
  • Pay any amount toward another person's tuition or medical bills. Tuition should be paid directly to an educational institution on behalf of a loved one. (The payment can't include books, supplies, or room and board—only tuition.) Qualified medical payments must be made directly to the provider.
• Converting traditional retirement plan assets to a Roth IRA. When it comes to estate planning, the primary benefit of a Roth conversion is that you pay taxes now, so your beneficiaries won't have to pay them when they inherit your IRA.
• Establishing a trust. Certain trusts can help lower the amount of your estate subject to taxes. They're a must-have when estate planning for those with substantial assets.

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