A guide to estate planning
October 12, 2023 8 min read
Getting started with your estate plan can be tough. But you can follow this simple guide to start making your estate plan at any age.
- An estate plan includes instructions for distributing your assets, paying off your debts and caring for your dependents.
- If you die without an estate plan or a will, then state laws will dictate what happens to your property and who gets custody of your children.
- The basic parts of an estate plan involve listing your assets, choosing beneficiaries and writing a will. You’ll also need to appoint an executor to carry out your plan.
What is estate planning?
Estate planning is the process of deciding who will receive your assets and care for your dependents when you pass away. These details are captured in your will and other estate planning documents. Your executor carries out the instructions in your will and initiates “probate,” which is a court process that distributes your property.
Why is estate planning important?
Estate plans aren’t just for older people or wealthy families. Generally, it’s a good idea to create an estate plan if you have dependents or assets or both. For example, you might own a bank account, a home, a few investments and a dog. You’ll probably want to control how these things are distributed or cared for after your death.
Dying without a will is known as dying “intestate.” If this happens, the laws in your state will determine what happens to your belongings and dependents. Organizing your affairs before your death can ensure your wishes are fulfilled. It can also help you minimize estate taxes and inheritance taxes so more of your assets go to your heirs.
Estate planning checklist: 8 basic steps
You’ll start the estate planning process by creating an inventory of your assets and debts, figuring out which beneficiaries will inherit your belongings and choosing an executor to handle your final wishes. Then you’ll write the details of your estate plan in a document called a will.
When planning your estate, you can follow these eight basic steps:
1. Create a list of all assets and debts
The first step in estate planning is creating an inventory of what you own and any debts you owe.
Assets are things you own that have value, such as property, vehicles and collectibles. They also include bank accounts, investment and retirement accounts, and life insurance policies. Debts include any liabilities you have outstanding, such as a home loan or a credit card with a balance.
Keeping a list of your debts makes it easier for your executor to notify any creditors after you pass away.
2. Choose your beneficiaries
A beneficiary is any person or entity that will inherit your assets. For example, your beneficiaries may include your family members, friends and charitable institutions. You should name a beneficiary for any accounts you own, such as bank accounts, 401(k) accounts and life insurance policies.
The process is quick, but you’ll need to either log into your online account or contact the institution to officially assign a beneficiary. You can also name backup beneficiaries in case your beneficiary dies before your estate is distributed.
3. Name an executor of the estate
Your executor is the person who’s in charge of your estate, so they carry out the instructions in your will. For example, the executor may distribute assets to beneficiaries, pay off creditors, issue notices of death and file your final tax returns.
Choose a responsible person you trust to act as your executor, such as a spouse, child, sibling or close friend. It’s also a good idea to name at least one backup executor in case your executor can’t carry out their duties.
4. Write a will
A will is a legal document that explains your final wishes, such as how you want your property distributed and who will care for your children or pets.
It may seem obvious, but the will must include your full name and should state somewhere that the document is a will. The document should also name your executor and include a list of your beneficiaries and what they’ll receive.
This is where your inventory and beneficiary list will come in handy. You can assign a beneficiary to each financial account and insurance policy, along with any remaining valuables. Then appoint someone you trust to be the guardian of your pets and minor children.
5. Provide detailed directives
An advance directive is a legal document that allows someone else to make decisions if you’re unable to do so yourself. A will is one type of directive, and there are others to choose, too. These can help guide choices for caregivers and doctors if you’re ill, injured, having memory issues or nearing the end of life.
- Setting up a trust: You might decide to move some of your financial accounts and property to a living trust. A trust is a legal arrangement where you transfer ownership of your assets to a “trustee.” Trusts may help your heirs avoid the court probate process, saving them time and money.
- Appointing a power of attorney: A power of attorney is a legal document that appoints someone you trust to handle your financial or legal affairs. A medical proxy is similar, and they can make medical decisions on your behalf if you become incapacitated.
- Creating a funeral directive: This type of directive includes instructions for the type of funeral you want, your burial or cremation wishes and how the funeral will be funded. It’s a good idea to choose a person to handle these arrangements and communicate with the funeral home. The person should be someone you trust who agrees to carry out your instructions. If you don’t appoint someone for this duty, then state law usually dictates who can make funeral arrangements.
6. Store all estate planning documents and records carefully
Once you’ve written your will and filed any legal directives, you should store these documents in a safe place. For instance, you might keep the original copies in a fireproof box in your home or inside a desk. Label the file to make it clear what the documents are and tell someone where they are stored.
Here’s a list of what you might need to file away:
- Your will and legal directives
- Statements for insurance policies, such as life insurance, homeowners insurance and disability insurance
- Statements for financial accounts, such as savings accounts, checking accounts, investments and retirement accounts
- Documents that prove ownership, such as car titles, property records and deeds
- Statements for any debts, such as credit cards, loans and mortgages
- A document that includes information about how to access all your accounts, such as where the account is held, the account number and any login details
7. Consider whether you need professional help
You can hire an attorney or estate tax professional to help create your estate plan, but whether you need one depends on your situation.
If your estate plan is simple and straightforward, then you might be able to use an online program to write your will and file legal directives. These programs walk you through the process using an interview template. It will ask questions about where you live, your finances and your assets. You can later update your estate plan if needed.
If your situation is more complicated or you’re unsure about whether it’s done correctly, it might be worthwhile contacting a professional. They can help determine what you need and how to document your plan.
8. Plan to reassess
As your life changes, so should your estate plan. It’s a good idea to regularly review your estate plan to ensure your accounts have the right beneficiaries and your will reflects your wishes. Look through your plan annually and during big life events, such as marriage, the birth of a child, the purchase or sale of a home, divorce or the loss of a loved one.
Estate planning FAQ
How much does estate planning cost?
The cost of an estate plan varies, depending on the service you use, what you need and where you live. Attorneys might charge $250 to $600 an hour to prepare and file your documents or between $2,500 and $7,500 as a flat fee. Online services are cheaper and typically range from $100 to $600, depending on what you need.
What does an estate planning attorney do?
An estate planning attorney can walk you through the process of making end-of-life arrangements. They may offer different services, such as preparing a will, assigning beneficiaries, and crafting power of attorney documents. You may be able to prepare some of these documents on your own or with special software. But an estate attorney can help maximize your legal protections and tax benefits.
Estate planning in a nutshell
Creating your estate plan now can ensure your belongings go to the right place after you pass away. Anyone with children, pets or assets can benefit from creating one of these plans. Depending on the complexity of your estate, you may decide to hire an attorney or use online services that walk you through the process.
Losing a loved one can be emotionally challenging, but the logistics of sorting out their finances don’t always have to be. Check out Capital One’s guide to handling financial matters after a death in the family.