Estate Planning Checklist: Everything You Need to Know

Learn the 12 steps you need to take to make an estate plan.

Christy Bieber
Christy Bieber
Dec 22, 2018 at 8:05PM
Investment Planning

You need an estate plan. This is true even if you don't have a lot of assets. It's also true if you're young, or if you don't have close family members.

Estate planning means preparing for the inevitabilities of life. People get sick or hurt, and you need a plan in place to determine what kind of medical care you'll receive if this happens to you. People become incapacitated, unable to make important decisions on their own, or unable to live independently. And of course, people die.

Estate planning helps to protect your family and your assets in any of these unfortunate situations.

Unfortunately, far too many people don't know what a complete estate plan includes or how to go about creating one. Making an estate plan involves way more than writing up a will, and you should ideally get legal help with it so you can use the right estate planning tools in the right way. 

If you're unsure where to get started, or if you want to learn more about the most important aspects of estate planning, this guide will help.

Last will and testament with eyeglasses sitting on top

Image source: Getty Images.

What are the steps of estate planning?

The steps involved in making an estate plan include the following:

  1. Identify your goals for creating an estate plan: Do you want to provide for your family, protect assets, prepare for incapacity, take control of your legacy, or do all of the above?
  2. List the asset you want to include in your plan: When making a plan, you need to consider all of the money and property you own either independently or jointly.
  3. Identify the risks to your assets and make plans to protect them: If you lose your wealth because of high nursing-home costs, because of creditor claims, or because you don't make a business succession plan, then you'll undermine your efforts to leave a legacy. You need to know what risks you face and mitigate them.
  4. Identify the loved ones you want to provide for and protect: There may be many people in your life whom you need to consider in your plan, including not a spouse, children, friends, and even pets. And your loved ones may all have different needs. For example, your minor children will need a guardian if you can't raise them to adulthood.
  5. Decide whether you want to make charitable contributions: You may want to make bequests in your will to a charity, or take other steps to give such as creating a foundation or a charitable remainder trust.
  6. Determine whether your potential heirs or beneficiaries have any special needs: In some cases, you'll need to take extra steps to ensure that an inheritance is transferred appropriately and used wisely.
  7. Determine whether you'll owe estate tax: The federal government and some states charge taxes on larger estates.
  8. Decide whether avoiding probate is one of your goals: In most cases, assets transfer through the probate process, which can be complicated and expensive. You may want to avoid this, and that will require different estate planning techniques.
  9. Think about what will happen if you become incapacitated: If an illness or injury leaves you temporarily or permanently incapacitated, you'll need to consider questions such as who will make decisions for you and what kinds of care you'll receive or reject. You'll also need to think about who will provide you with care and how you'll pay for it.
  10. Make sure you have the right insurance policies: If you don't have enough money to provide for dependent loved ones, you may need to obtain additional coverage, such as life insurance. 
  11. Determine what legal tools you'll need to use: You may need to use tools such as trusts, a power of attorney, advance directives, and a last will and testament to accomplish your goals, provide for loved ones, and prepare for incapacity. 
  12. Implement your plan: This could involve taking steps such as changing how property is owned, creating legal documents, or transferring assets into a trust. You should likely have a lawyer help with this step. 

1. Identify your goals for creating an estate plan

Different people have different reasons for making an estate plan. Some of the most common reasons include the following:

  • To ensure minor children are cared for if parents die before the children become adults
  • To ensure pets are cared for and financially provided for if something happens to their owners
  • To ensure that surviving family members are financially taken care of in the event of a death
  • To ensure a family business remains operational and within the family after a death
  • To control what happens to assets after a death occurs
  • To protect wealth, including a family business or other assets
  • To prepare for incapacity by providing instructions for medical care and specifying who should make decisions and manage the affairs of the incapacitated person
  • To make a plan for charitable giving
  • To make a plan to facilitate the timely and cost-effective transfer of assets outside of the probate process
  • To reduce or avoid estate tax on a larger estate
  • To take more control over what happens to an inheritance, such as ensuring money is used only to pay for a college education or ensuring money doesn't go to a child until after his or her 21st birthday
  • To provide for a disabled loved one who is receiving government benefits that could be lost due to an inheritance, or to provide for a disabled loved one who cannot manage an inheritance independently

You may also have other reasons to prepare for illness, injury, or death. Consider the issues most likely to affect you and your family if you get sick or pass away. 

2. List the assets you want to include

One of the key reasons for creating an estate plan is to make sure your assets are easily transferred to the new owners you've designated.

You'll need to know exactly what assets you want to include in your estate plan. This will not only help to ensure that you have appropriate plans in place to transfer all of your wealth, but also help your family members see exactly what you own so that nothing falls through the cracks.

Some of the assets you'll want to address in your estate plan include:

  • Real estate you own
  • Vehicles you own
  • Your ownership interest in a business and its assets
  • Intellectual property you own, such as valuable patents or a monetized social media account
  • Investment accounts
  • Personal property including jewelry, books, art, and furniture
  • Life insurance policies

When you make a list of assets, it can be helpful to determine how those assets are owned and whether you have any designated beneficiaries on the accounts.

For example, if you have a 401(k) account, you probably chose someone as a beneficiary on that account -- so note that on your list. If you own real estate, you may own it jointly with someone else, and you'll want to find out how your ownership of the property is structured and how much of a claim your inheritors may have to it.

You need to know these things because they will matter when it comes to how the accounts and property are treated upon your incapacitation or transferred upon your death.

3. Identify the risks to your assets and make plans to protect them

Keeping your wealth safe is a key part of securing your legacy. It's important to identify potential risks you could face during your lifetime that might lead to a loss of wealth and an inability to pass money or property on to your family members. 

Some of the risks you may need to think about include:

  • Losses due to claims against your business: If you own a company, your personal assets are vulnerable unless the business is properly structured. You can consider incorporating the business. Not only can this help protect personal assets, but it can also make it easier to transfer the business to loved ones. 
  • Losses due to nursing home costs: Nursing home care is extremely expensive. And, except in rare cases, it won't be covered by Medicare or by any private health insurance policies you may have. You'll need to make a plan to afford care. This could include buying long-term care insurance, or it could involve making a "Medicaid plan." A Medicaid plan involves structuring the ownership of wealth -- usually using a Medicaid asset protection trust -- so it doesn't count against you when a determination is made as to whether you qualify for Medicaid, which covers long-term care. By making a Medicaid plan, you may be able to get Medicaid to pay for nursing-home or long-term care while keeping your wealth safe.
  • Losses due to Medicaid estate recovery: Some of your assets, such as your primary home, receive protections during your life so that you may be able to hold on to those assets while still getting Medicaid to pay for a nursing home. However, states can make claims against your estate in a process called "Medicaid estate recovery" after your death. This could potentially lead to the loss of your home or other wealth that you owned if you qualified for Medicaid coverage after age 55 or if you received Medicaid coverage for long-term care. You can use tools such as a Medicaid asset protection trust to help you prevent this loss so that your home and other property can go to your family. 
  • Losses due to creditor claims: Creating an irrevocable trust could help to protect wealth so if creditors make claims against you, you won't lose money or property that you hope to pass on to heirs. 

Thinking about the risks to your wealth is beneficial so you can incorporate plans for asset protection into your estate planning process. 

4. Identify the loved ones you want to provide for and protect 

You'll need to think about everyone you want to protect and provide for if something happens to you. This could include:

  • Spouses
  • Children
  • Pets
  • Parents
  • Friends
  • Business partners

You need to make a list of the loved ones you want to consider in your estate planning because you may need to use special tools or take additional steps to protect certain family members or friends.

For example, if you have children who are under the age of 18, you'll need to not only ensure that they're financially provided for but also make certain you name a trusted person to act as guardian in case both parents pass away or become incapacitated before the children reach adulthood. 

5. Decide whether you want to make charitable contributions

You'll also have to consider whether you want charitable giving to be a part of your legacy. Consider organizations that you support and think about whether you want to donate any money or property to them. If so, you can identify the most effective way to make a gift as part of your estate planning process.

You could, for example, create a charitable remainder trust, which is a tax-exempt irrevocable trust that allows beneficiaries of your choosing to receive income from the trust for a period of time before the remainder of trust assets are donated to charity. Or, of course, you could also make a direct gift to a charity upon your death, or you could even choose to create and endow your own foundation with the help of an attorney. 

6. Determine whether your potential heirs or beneficiaries have any special needs

Perhaps your loved ones are self-sufficient, and you can provide them with an inheritance just to improve their quality of life. In other circumstances, however, they may have specific needs that you must address as part of your estate planning process. For example:

  • Minor children will need a guardian to be named for them and will likely also need substantial financial support. Unfortunately, minor children cannot inherit money directly, so you'll need to consider the use of certain legal tools, such as a trust, to provide funds for them and ensure a responsible person manages that money.
  • Pets may need financial support and cannot inherit directly. If you want to ensure that your money goes toward providing the best quality of life for your pets, then creating a trust and providing specific instructions for how the funds are to be used can be a smart approach.
  • One or more of your heirs may be financially irresponsible. You may be concerned that your heirs will go bankrupt, get divorced, or squander an inheritance quickly, so you may want to use special tools -- such as a spendthrift trust -- to provide an inheritance that they can't waste. A spendthrift trust allows you to name a trustee to manage the wealth you provide. You can name the less responsible heir as the beneficiary and provide the reliable trustee with specific instructions on when and how money may be doled out to the beneficiary. Because the beneficiary can't access the trust assets, the wealth is kept safe from loss.
  • You may have a non-citizen spouse who could end up owing estate tax. While you can normally pass as much wealth as you want to your spouse without owing any estate tax, this isn't the case if your spouse isn't a citizen. If your estate is large enough to owe taxes on and your spouse is not a citizen, then you may need to use a Qualified Domestic Trust to claim the marital deduction and defer taxes.
  • You may have a disabled heir. Your disabled heir may be receiving Medicaid or other benefits from the government. Many of these benefits are means-tested, which means people with too many financial resources lose access. Allowing a disabled heir to inherit directly could thus cause serious problems. Plus, your disabled heir may not be able to manage the money appropriately. Using a special needs trust allows you to transfer assets to the trust. A trustee manages the money for the disabled heir, while the disabled heir doesn't own the assets and thus doesn't lose any government benefits.

In any situation where your heirs can't just be given money or property when you die, you'll need to identify the right estate planning tools for transferring wealth to your loved ones.

7. Determine whether you'll owe estate tax 

The federal government and some state governments charge taxes on assets transferred after your death. Generally, you can transfer as much money and property as you want to your spouse without owing any estate taxes. But if you're going to leave assets to someone other than your husband or wife, you need to know the rules on estate tax

In 2018, you can transfer up to $11,180,000 without triggering federal estate tax. Your estate tax exemption can be given to your spouse if you don't use it. In other words, if a husband dies and leaves his entire estate to his wife, then he hasn't used any of his $11,180,000. His wife now can transfer $22,360,000 to whomever she wants tax-free, because she has her husband's exemption plus her own.

However, some states charge estate tax on much smaller sums of money (though the thresholds are still in the millions). The states that tax your assets when you die include Connecticut, Delaware, Hawaii, Illinois, Massachusetts, Maryland, Maine, Minnesota, New Jersey, New York, Oregon, Rhode Island, Vermont, Washington State, and Washington, D.C. If you live in one of these locales, check the threshold at which you'll start to be assessed estate tax.

If it looks as though your estate will be taxed, you may be able to use estate planning tools to reduce or avoid that tax. For example, you can make inter vivos gifts, which are gifts made during your lifetime. So long as you keep those gifts to each recipient below the threshold at which you trigger gift tax, you can reduce your taxable estate without having to pay any taxes on transferred wealth.

There are many creative approaches to transferring money while reducing or avoiding gift and estate tax. For example, some people create family limited liability companies, or family LLCs, and give the company investments or assets to manage. The owner of the assets is the controlling member of the LLC. Other family members are given an ownership interest in the LLC, but no control. Their interest is worth little because they don't have control, but they get an ownership stake in the assets the LLC owns.

This technique can also be used to help protect assets from creditors -- but it's complicated, so you should have a lawyer help you set this up. 

8. Decide whether avoiding probate is one of your goals

One of the key reasons many people make an estate plan is to transfer assets outside of probate. Probate is a process in which estates are settled. After almost any death, assets have to pass through probate unless the deceased had a very small estate -- or unless the deceased made plans to transfer assets outside of probate.

When assets are passed through probate, the executor of the estate or a personal representative appointed by the court needs to file lots of paperwork with the court. An accounting of estate assets needs to be made. An opportunity is given for creditors to make claims. All potential heirs or beneficiaries have to be notified. The executor has to keep careful accounting of estate assets. The will needs to be presented for probate, and there's an opportunity for it to be contested. And the court overseas all of this.

The entire probate process can take months to complete and can lead to costly legal fees. And because it happens in court, court records are created that can become public record.

Plainly, there are many reasons to avoid probate at all cost. That means you can't simply transfer assets through a will. You'll have to use other tools, such as joint ownership, pay-on-death accounts, and living trusts that allow assets to be passed through trust administration. We'll talk more about those tools later. 

9. Think about what will happen if you become incapacitated

Estate planning involves not only making plans for your death, but also preparing for incapacity. If something happens to you, there are a few key issues that need to be addressed:

  • What kinds of healthcare will you receive? You can address this with advanced directives, such as a living will and a healthcare power of attorney. With a living will, you either agree or decline in advance to go through certain extraordinary lifesaving measures. You can specify, for example, that you don't want to be kept alive with a feeding tube or ventilator. If you want no extraordinary measures used to prolong your life, you can make a "do not resuscitate" order, or DNR. And with a healthcare power of attorney, you name a person you trust to make decisions for you if you cannot consent due to incapacity and haven't addressed the issue in your living will. 
  • Who will manage your assets and make decisions on your behalf? You can use a living trust and name a backup trustee who has the right to manage trust assets if something happens to you. Alternatively, you could create a power of attorney and give a person who you choose as your agent authority to make decisions and manage your affairs. You'll want to create a general power of attorney so the person you designate has broad authority to act on your behalf. And you'll need to make it durable, because otherwise the grant of authority will end upon your incapacity. Some states default to your power of attorney being durable unless you say otherwise, but in others, the opposite is true, and your agent will lose the ability to act for you at the very time you need him or her most unless you've specified that your power of attorney must be a durable one.
  • How will you get care? If you cannot live independently, you may need long-term care at home or in a nursing home. This can be costly and won't be covered by Medicare in most circumstances unless you need skilled nursing care. A Medicaid plan, which was discussed above and which involves structuring ownership of assets so you can qualify for Medicaid when you require care, could help you ensure you don't lose everything. A long-term care insurance plan may be a good alternative, especially if you can lock in an affordable rate by enrolling well before you'll need coverage -- say, around age 50.

When you name an agent using power of attorney, or when you name a backup trustee for your living trust, that person will have a fiduciary duty to act in your best interests. This is the highest duty owed under the law. It's the same one a lawyer owes to a client.

10. Make sure you have the right insurance policies

Many people need to buy life insurance as part of their estate plan. You need life insurance if your death would create a financial hardship for people you care about.

For instance, you should purchase a life insurance policy if:

  • Your family depends on your income
  • You have business partners who would need to buy out your interest in the company after you pass on so they can continue operations
  • You have a minor child and you want your child to be provided for if something happens to you

When you buy life insurance, you need to name a beneficiary who will receive the death benefits. Often, it makes sense just to name the person you want to receive the funds as your beneficiary. However, this isn't always the case. If you want the funds to go to a minor or a disabled person, for example, this creates problems, because the disabled person or minor can't manage the funds and typically cannot or should not inherit directly.

You can make a trust the beneficiary of the life insurance policy. The funds would then pay out to a trust. A trustee you select could manage the funds for the benefit of the trust beneficiaries, which are the people whom you want the trust assets to benefit. In your trust document, you can provide specific instructions for how the money is to be used. For example, you could specify that the money is to be used only to cover the costs of your child's education.

Think carefully both about how much money your loved ones will need after you're gone and how best to give that to them when you purchase a life insurance policy.

11. Determine what legal tools you'll need

Finally, you'll need to decide what tools you actually need to use to implement your plans.

One of the most common tools in an estate plan is a trust. Trusts can be used to accomplish a wide array of goals, from protecting assets to facilitating the transfer of wealth outside probate.

When you create a trust, you create a trust document. You name a trustee, who controls the trust assets. You name beneficiaries, who ultimately receive the trust assets. You provide instructions for how the assets in the trust should be managed and distributed. You then transfer the ownership of assets to the trust.

If you make an irrevocable trust, you give up control over your assets but gain more protection for them. You cannot make any changes to the trust without going through a complicated process of amendments approved by trustees and beneficiaries. Someone besides you must be the trustee, and you must not be able to access the trust assets directly. This is the kind of trust you'd typically need to make to protect assets from creditors or to ensure assets in the trust don't disqualify you from Medicaid. The key is you that cannot freely access the trust assets, which is why those assets are protected.

If you make a revocable trust, you don't give up that much control over your assets. You can be the trustee who manages the assets (and can name a backup trustee who takes over in case of your death or incapacity). You can change the trust or end it at any time. Because you still have control over assets, they still count for the purpose of determining Medicaid eligibility and are still vulnerable to creditor claims. But after you pass away, the assets in the living trust can transfer outside of probate.

You should talk with a lawyer about whether you should use trusts and what kind of trust is right for you. 

Other legal tools you may need to use include:

  • A last will and testament to provide instructions for the transfer of assets (the assets will typically be transferred through the probate process).
  • Advance directives, such as a healthcare power of attorney, a living will, and/or a "do not resuscitate" order to provide instructions for what kinds of medical care you'll accept or reject.
  • A power of attorney to specify who will make decisions and control your assets in the event of your incapacity.
  • Pay-on-death accounts, which allow you to designate a person to inherit the funds in the account automatically upon your death. Assets in the account will transfer outside probate. This is commonly done with investment and bank accounts.
  • Joint ownership. When you own property with someone else, you can structure ownership as a joint tenancy with rights of survivorship. Upon a co-owner's death, the property will automatically transfer to the other co-owners outside probate.

You need to be aware that if you use tools such as pay-on-death accounts or joint ownership, your designated beneficiaries or co-owners inherit automatically, regardless of what you might say in your will. You can't leave a jointly owned house to your friend, for example; if your spouse is the co-owner, your spouse will get the house automatically, even if your will clearly states that your friend should inherit. And if you specify in your will that your daughter should inherit all your investment accounts but your son is the designated beneficiary on an account, your son will receive it.

You should work with an attorney to determine which tools are best for you and to understand the implications of using different kinds of legal tools to transfer assets, protect yourself, and protect your loved ones. 

12. Implement your plan

You'll need to ensure that you've chosen the right tools and that the legal documents you create are enforceable. You don't want to take a chance on having your will successfully contested or your trust declared invalid after you've passed away or become incapacitated. This is why it is important to get legal help from an attorney when you make an estate plan. 

You'll also need to ensure you keep your plan updated as your life changes. If you get divorced, for example, you'll need to change your designated beneficiaries and update your will, trusts, and other estate planning documents. Be sure to keep on top of changes that need to be made so your plan always reflects your current wishes. 

Making an estate plan can't wait

You need to put an estate plan in place before something happens to you. If you wait until you're incapacitated, it will be too late for you to make a plan. If you don't make a plan and you pass away, you'll forever lose your chance to leave your legacy.

There is no guarantee as to how many tomorrows you'll have. Put your plans in place now so you can protect your autonomy, keep your assets safe, and ensure that your family is provided for.