Estate planning is one of the key components of the integrative wealth management process. However, for many people, absent major life changes, drafting or updating estate documents is a process they may only consider every five to ten years. We recommend, however, that clients consider some items on a more frequent basis. We’ve compiled this annual estate planning checklist to help clients think through the following each year:
1. Are my beneficiary designations up to date?
Beneficiary designations are a very important part of your broader estate plan because they list the person or entity who would benefit when you pass away. For many, beneficiary- designated accounts represent the majority of their assets so it is critical to be deliberate about who is named to receive these assets. Your assets might include Individual Retirement Accounts (both Traditional and Roth), 401(k)s, pensions, annuities, and insurance policies. We encourage clients to name both primary and contingent beneficiaries and review these designations annually to ensure they are consistent with your intentions.
2. Are my assets titled appropriately?
If you have a trust-based estate plan, it is critically important to properly title the assets in the name of the trust. Assets may include primary residences, vacation homes or cabins, bank accounts, and brokerage accounts, among others. Assets not titled in the name of your trust will likely go through probate, which may be contrary to the intentions of a trust-based estate plan. We recommend that clients regularly review the ownership of all of their assets to ensure titling is consistent with the design of their estate plan.
3. Do I have documents in place to plan for my incapacity?
The two main incapacity documents are a healthcare directive and a financial power of attorney. These legal documents allow you to name an agent who may make medical and financial decisions on their behalf during times of incapacity. Note that these documents vary by state, so if an individual has a second home or spends significant time in a state other than where the documents were drafted, the individual may want to ask an attorney about drafting additional incapacity documents for that other state.
4. Does my estate plan name the appropriate people as executor, trustee, etc.?
Each estate planning document names people to step into a particular job that comes with certain duties. A will names a personal representative or executor who settles the estate. A trust names a successor trustee who steps in to handle all trust assets for the trust beneficiaries upon your incapacity or death. It is important to review all estate planning documents, including the will, trust, and the incapacity documents described above, to ensure that the people named are still alive and able to handle these important roles. As children get older, parents often choose to change their estate planning documents to give children these jobs instead of a parent, sibling, or friend.
5. Does my estate plan name my preferred charities appropriately?
For testamentary charitable gifting, we encourage naming preferred charities as beneficiaries on qualified retirement accounts. We encourage this practice because a charity named as a beneficiary of a qualified retirement account will receive distributions free of any income taxes. On the other hand, an individual named as a beneficiary of a qualified retirement account will pay ordinary income taxes on all distributions.
6. Have I updated the gift amounts specified for heirs and charities?
Understandably, clients are concerned about maximizing what they leave behind to their heirs or to charities. To ensure your current gifting preferences are accurately reflected, we recommend conducting an annual review of the gift amounts intended for various beneficiaries. At the same time, your team at CCM will help you regularly monitor and review any changes to federal and state laws governing estate tax exemption amounts.
The Best Approach: Pair the Annual Estate Planning Checklist with Family Communication
In addition to these considerations, we encourage you to have conversations with family members about your estate intentions. These conversations are opportunities to communicate what is important to you, to pass on family values, to achieve a better understanding of desires and goals, and to best plan for the future. Our team at CCM is here to facilitate that process, and step through the above review items, with you and your family at any time.
NOTE: The information provided in this article is intended for clients of Carlson Capital Management. We recommend that individuals consult with a professional adviser familiar with their particular situation for advice concerning specific investment, accounting, tax, and legal matters before taking any action.