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6 Essential Steps of Estate Planning the Smart Way

6 Essential Steps of Estate Planning the Smart Way

The steps of estate planning deal with making provisions for your assets and remaining financial responsibilities after your death or incapacitation. There’s a perception that this area of financial planning is only a concern for the wealthy, but this isn’t the case; anyone with any assets or debt can benefit from smart estate planning.

There’s also an idea that estate planning is only for seniors. This too is a misconception. It’s not the most pleasant thing to think about, but anyone can suffer an untimely death or unexpected incapacitation at any time. Having a plan in place just in case is always a sensible move.

Whether or not you’re wealthy or elderly, there’s peace of mind in knowing that your wishes are known, that financial matters are accounted for in the future, and that your loved ones will face a hard transition with a little less stress.

Read on to get acquainted with the six basic steps of estate planning:

1. Work with a Professional Financial Advisor

We can’t emphasize this enough. Successful estate planning takes into account a wide range of personal and legal variables. Unless you have very few assets and very simple, straightforward wishes, it’s beneficial to get some guidance from an expert.

A professional financial advisor helps you understand your options, accurately foresee your family’s needs following your death or incapacitation, and convey your directives and wishes in appropriate, legally binding ways.

This expert also informs you about relevant state laws. While federal estate and inheritance taxes only kick in for high-value estates, some states levy taxes on estates, and sometimes again on those who inherit. A financial advisor helps you navigate any tax implications in the most favorable ways.

2. Take Inventory of Your Assets

You accumulate all sorts of tangible and intangible assets over the course of your life. Ensuring that your assets pass on to the right people starts with itemizing them all. Common examples of assets include:

  • Home and other real estate holdings
  • Personal possessions (including high-value items and collectibles)
  • Business interests
  • Money in checking and savings accounts and certificates of deposit (CDs)
  • Stocks, bonds, and mutual funds
  • Retirement accounts like a 401(k) or IRA
  • Life insurance policy

3. Provide for Your Family

Often, your family’s lifestyle, financial security, and future plans for children or aging parents are dependent on your income. Smart estate planning means making sure your family will be financially stable when faced with final expenses and no longer receiving the money you bring in.

A sufficient life insurance policy is typically a significant part of this. Also, provisions for childcare are an important aspect of creating a will and establishing your wishes.

Of course, there are a lot of variables in play at this stage of estate planning. This is an example of when the assistance of a professional financial advisor makes an enormous difference in the manageability of creating your plan—and ultimately, its success.

4. Put Your Directives in Place

A fully developed estate plan doesn’t only divvy up your assets, although that’s certainly a big part of it. But it starts with an advance healthcare directive, which establishes your wishes and gives an individual medical power of attorney should you become unable to make medical decisions for yourself. This includes a living will.

You should also name someone to have financial power of attorney to make financial decisions on your behalf if you become unable to do so. This includes the ability to access your assets and pay your outstanding bills, taxes, and debts. You can give people limited power of attorney, which puts restrictions on how much financial and legal authority they have.

In some circumstances, it makes sense to set up a trust as part of carrying out your directives. Again, this is something a qualified financial advisor should help with.

5. Look Over All Named Beneficiaries

Review who you’ve named as beneficiary in various places over the years. It’s not uncommon for people to name someone when they’re in their 30s, only to forget about it in the ensuing decades.

For example, some assets like insurance policies and retirement accounts have beneficiary designations. That’s where you assign a beneficiary for the product, and it overrules a will. So, if you started a plan when you were married to your first spouse and named him or her as the beneficiary, they will receive payment instead of your current spouse.

Also, confirm that you haven’t left any beneficiary designations blank. If you do, asset distribution will often be executed according to your state’s laws when the account goes through probate. Naming contingent beneficiaries—secondary choices in the event that the primary beneficiary is deceased or incapacitated when due to inherit—is another critical part of smart estate planning.

6. Reassess Your Estate Plan

In life, things change. This might include significant changes to your financial circumstances or asset holdings, divorce or marriage, the birth of a child, death of a spouse or immediate family member, and so on.

Any major change could easily necessitate changes to your future financial plans. That’s why the last of the steps of estate planning is an open-ended one, simply calling for periodic reassessment of the provisions you’ve put in place.


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