Retirement Watch Lighthouse Logo

10 Basic Rules For Your Estate Planning Checklist

Last update on: Aug 14 2020
estate planning

You need an estate plan, and this is the time of year when many people consider finally drawing up or revising their plans. Estate planning should be tailored for the individual. Contrary to what you’ll hear in some estate planning seminars, there aren’t many strategies that should be in every estate plan. But there are some basic rules and guidelines that apply to every estate plan, whether you are worth $500,000 or $500 million. If you don’t follow these rules you likely will do damage to your heirs and perhaps leave them believing you weren’t fair. So, before you get wrapped up in the merits of a grantor retained annuity trust versus a charitable remainder trust, keep these rules in mind.


Do something.

Many people don’t do any estate planning, because they cannot resolve some issues. Perhaps the spouses cannot agree who should be the guardians of their children, or you don’t know how much to leave to charity. Perhaps the estate planner is proposing a strategy that you don’t quite understand or aren’t comfortable with yet.Don’t let these issues leave you with no estate plan at all. If you don’t have a plan in place, with at least a basic will, then your state will determine how the property is distributed. It might be best for you to do an estate plan in installments. Put together a simple, basic plan now. Then, work toward the ideal estate plan as you learn more about the tools available, refine your goals, and resolve disagreements.


Keep track of your estate.

There’s a story that W.C. Fields had money stashed in small banks all over the country. He didn’t keep a master list of the banks, and his heirs never were sure they found all the money. They sure spent money trying to track down all the accounts. Fields probably knew how to find everything, but he didn’t give anyone else all the information.Bad recordkeeping can have several disadvantages. As in the Fields case, all your property might not be located. At a minimum, incomplete or bad records can drive up the cost of administering your estate and delay the settlement and distribution. Also, your estate planning advisor needs a good list of your assets and liabilities to give you the best advice.

At a minimum, you should update the complete list of your assets and liabilities once a year and share this with the person (or persons) named as executor in your will. And make sure your executor knows where to find all the documents to back up the financial statement.


Don’t look for right and wrong solutions.

Some estate planners like to recommend basically the same plan for most people. Likewise, many clients believe that there is only one plan that is right for them. But for the most part there aren’t right and wrong estate plans.An estate plan strikes a balance between your goals, the needs of your family, and the tax law. For example, reducing taxes often means either giving up control of property now or leaving everything to your spouse. So there is a trade off between taxes, control, and distribution. You also have to decide whether to leave assets to your heirs directly or with some restrictions.

A good estate planner will present you with several alternative plans. Each will resolve the trade offs in different ways. You choose the alternative that strikes the balance you prefer between your goals, the tax code, and other factors.


Carefully select executors and trustees.

I’ve covered this in past issues. Most people spend a lot of time on their plans, then select the executors and trustees as an afterthought. Too often, the client automatically chooses the estate planning lawyer as executor and the bank recommended by the lawyer as trustee. That might or might not be the best choice for you. Unfortunately, a good estate plan can be ruined if the wrong people implement it. Give a lot of thought to who should execute your plan.


Anticipate conflicts and reduce them.

Many people don’t want to resolve difficult issues for fear of offending someone, so they leave an estate plan with built-in conflicts. Sometimes the conflicts are among personalities. If kids don’t get along now, if you are always mediating their disputes, then they aren’t likely to amicably manage assets when sharing equal voting power after you are gone? Perhaps they should be given separate ownership of assets, different voting rights, or someone else should help make decisions for the property.Other times the conflicts are in the roles of an individual. A classic conflict is when a spouse is made trustee, receives income from the trust, and the children get the trust property after the spouse dies. Usually the children end up believing that the spouse invested for maximum current income at the expense of earning capital gains for the future. Your estate plan should avoid such built-in conflicts. At best they lead to hard feelings and at worst lead to expensive litigation.

Another built-in conflict often occurs when heirs are told to decide among themselves how to divide personal property. You should provide some way for dividing this property. I’ve offered several suggestions in past issues.


Don’t be a control freak.

Some controls in your plan are a good idea, such as when a beneficiary doesn’t have good judgment or experience handling a meaningful amount of money. In such cases, property should be put in a trust with the trustee given guidelines from you for investing and distributing the property.But some people go a step further and dictate how the money is and is not to be invested and distributed. That doesn’t allow for changing circumstances. There are trusts saddled with restrictions that require them to be invested in Treasury bills, gold stocks, or the stock of certain companies, for example. These restrictions often do more harm than good.


Make your general plan known.

If you don’t tell heirs your plans, they will develop expectations on their own. Feelings tend to be hurt when they are surprised after your death. That can lead to anger or bitterness that will be taken out on others in the family. If you aren’t going to treat heirs equally or know that someone is expecting certain property, it is important to let the affected people know ahead of time.


Don’t circulate your will.

A will spells out the specifics of your plan, and these probably will change every few years. While you want the general outline of your plan to be known among those affected, don’t circulate the will. Any change in the specific details gives someone a reason to be upset.


Things change.

Your estate plan never is final. The property you own and its value changes. The members of your family change through births, deaths, marriages, and divorces. Your goals might change. You might be inclined to leave more or less to charity or specific heirs over time. You need to meet with your planner at least every two or three years to review changes in your financial picture, family, and goals as well as the tax law.


Keep it as simple as possible.

Some people get enamored with setting up multiple trusts, corporations, and other entities to hold property before or after their deaths. Using the tools of the superwealthy can be appealing. But it also can run up the cost of administering the estate and distributing property. Some people and their attorneys get so wrapped up with using the latest estate planning tools that they overlook simpler strategies that will accomplish their goals at least as easily. There are times when multiple trusts and the like are a good idea, but be sure complications are necessary to meet your goals before putting them in your plan.Remember that any mistakes in your estate plan will live long after you. Follow these rules and you’ll end up with an estate plan that works well for you and your heirs.



Log In

Forgot Password