If you’re like most Americans, you don’t have an estate plan (according to various sources, adults with estate plans range from 23% to 33% of the population). You may not even know where to start. That’s understandable, because a comprehensive estate plan can involve a variety of legal documents — the complexity depending on your wealth, tax exposure, family situation, and many other factors.
Most estate plans start with drafting a will, which you should do with the assistance of an attorney. But there are other issues you’ll need to consider and resolve before you can safely say you’ve established an estate plan.
Naming the Captain of Your Plan
One initial consideration is naming an executor. The executor is the captain of your estate plan team and should be competent and willing to carry out the duties. You may assign this responsibility to a family member, such as your spouse, adult child or sibling, or to a close friend. Many people choose a professional advisor with financial or legal expertise.
The executor you name will have to coordinate activities with attorneys, bankers and appraisers. So if you name a non-professional, make sure your executor is up to the task. Also provide adequate direction so your executor understands your values and priorities and will be able to navigate potential tricky situations, such as rivalry between family members.
Assigning an Attorney-in-Fact
After you’ve named an executor, you can move on to other priorities. A financial power of attorney authorizes an “attorney-in-fact” to act on your behalf for financial matters. The most common power of attorney, a “durable” one, remains viable even if you’re incapacitated. But with a “springing” power of attorney, control doesn’t take effect unless you’re incapacitated.
Often, the person designated as attorney-in-fact is the same as the estate plan’s executor. You may specify that this individual’s power be broad and encompass such matters as buying or selling personal property or you can limit the executor’s power to certain tasks, such as ensuring your assets are distributed according to your will and other estate documents.
Assembling Health Care Directives
Difficult decisions typically arise near the end of a person’s life. You can simplify matters by assembling a thorough list of health care directives. They commonly include a health care power of attorney. Comparable to a financial power of attorney, this document authorizes another person to make health care decisions on your behalf if you’re unable to do so yourself. Typically, the attorney-in-fact is a spouse, child or sibling. The document may be broad or limited and expires on death.
Another important health care directive is a living will, which is reserved for end-of-life situations. Depending on state law, it may allow you to express whether life-sustaining treatment should be administered in the event you’re terminally ill or injured. A living will may be combined with a health care power of attorney in one document, depending on state law. In other states, a living will may supplement a health care power of attorney. Both documents may be coordinated with other medical directives or proxies.
You also may draw up medical orders for life-sustaining treatment. For example, if you’ve been diagnosed with a life-threatening or terminal illness, medical orders would describe the actions your physicians will take. But you can also create medical orders if you’re not currently ill.
Making Tax-Advantaged Gifts
One of your top priorities likely is to ensure that your assets are passed to loved ones without adverse gift or estate tax consequences. Two basic tax law provisions can help:
- Gift and estate tax exemption. For 2024, you can shelter up to $13.61 million from gift and estate tax, in addition to amounts covered by the annual gift tax exclusion. Any unused portion of your exemption is available to the estate of your surviving spouse with a portability election on a timely filed estate tax return.
- Gift tax exclusion. Under the annual gift tax exclusion, you can give each recipient up to $18,000 in 2024 without any gift tax liability, thereby removing assets from your taxable estate.
These two rules may be coordinated with other strategies that maximize tax benefits while offering other advantages.
Addressing Other Goals with Trusts
Various trusts are available to help meet other goals, such as leaving money to charity, carving out retirement income for yourself, protecting children from a previous marriage and even providing for the care of a beloved pet. Work with your estate planning advisor to determine what type or types of trusts will help you meet your objectives. Also keep in mind that you’ll need to update your estate plan periodically as your situation and the law changes.
@2024