How to Create an Estate Planning Strategy in 8 Steps

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Posted: Sep 22, 2017 5:11 PM

Last week, we began our 8-point estate planning checklist, including how to handle your will, and avoiding probate.

Today, we’ll complete the checklist, starting with…

Powers of attorney. You need these documents before you have a will, because you’re likely to become disabled or need help managing affairs before you pass away.

There are two main types of power of attorney (POA).

You need a financial POA designating one or more people to pay your bills, manage investments, and handle other financial matters when you aren’t able to.

The need might be temporary, or it might be long-term. You can create a general durable power of attorney enabling the person (or persons) to take any actions that need to be taken.

Or you can limit the scope of authority a person has. Limiting the scope of a POA takes the risk that an unanticipated action needs to be taken but no one legally is authorized to act.

A healthcare POA is the second document. There are several variations, also known as healthcare proxies, living wills and advance medical directives.

The document designates one or more people to make medical decisions when you aren’t able to, usually in the case of a medical emergency or crisis.

Beneficiary designations. Some assets aren’t affected by the terms of your will. They avoid probate, and ownership by automatic operation of law to the person named in the beneficiary designation form or ownership document.

Your will comes into play only if you failed to name a beneficiary, or named your estate.

IRAs and other qualified retirement plans are usually the most important and valuable assets in this category.

When you want the next generation of owners to benefit from the tax deferral, it’s important to name individuals as beneficiaries. If you name your estate or fail to name a beneficiary, the IRA will have to be distributed and taxed within five years.

Life insurance policies and annuities also have beneficiary designations. Even some obscure assets, such as credit card points, sometimes allow a beneficiary to be named.

There’s no reason to delay a beneficiary review or change. Too many people fail to update beneficiary designations. Some of their assets go to people they didn’t intend, and the heirs waste assets fighting over them in court.

Digital assets. The law is slowly evolving in this area, but you need to take action.

First, you need to compile a list of your digital assets: social media sites, other websites, email addresses and any others you might have. The list should include the address or other identifier, plus the access information such as username and password.

Then make a list of any automatic payments you set up to have amounts automatically charged to a payment card or deducted from a financial account. Provide all the details about the account and how to access it. Your executor has to ensure payments are made and eventually cease.

Philanthropy. While some people argue that major tax reform will reduce charitable giving, I’m skeptical.

I believe most people make charitable contributions with little tax motivation and structure gifts to maximize tax benefits after deciding how much to give.

If that describes you, then you’ll want to plan charitable giving without waiting for the tax law to settle.

The earlier you begin planning, the more choices you’ll have in structuring direct gifts of cash or property, charitable gift annuities, charitable remainder trusts, charitable lead trusts and other strategies.

Education. Perhaps the most neglected area of estate planning is to educate and inform the beneficiaries of the estate. Loved ones need to know the basics of your estate and then plan for it.

Don’t wait for Congress. Take action now.

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