5 key pieces for an effective estate plan

Most people's estate-planning goals come down to two things. First, they want their belongings and property to be distributed according to their wishes. Second, they want that to happen with minimal expenses and taxation — both while they're alive and after they die.

While your goals may be simple, you can employ lots of strategies to achieve them. Read on for five key steps toward drafting an effective estate plan.

1. Take inventory of your assets and liabilities.

You may have a pretty good idea about what you own and what you owe, but your family may not know about every little thing. Take time to create an itemized list of all your assets and liabilities. Start a folder of written or printed documents. Include lists and notes for items in the categories below.

Your assets

When you make a list of your assets, include property as well as all your financial assets. Be sure to note account numbers and policy numbers.

• Personal property
• Real estate and rental property
• Safe deposit box, its contents and location of the key
• Bank accounts
• Brokerage accounts
• Individual retirement accounts
• Employer sponsored retirement plans or pensions
• Life insurance policies
• Annuities
• Social Security, other government pensions and their monthly or annual benefit
• Securities
• Business interests
• Digital assets such as crypto or virtual currency, stablecoins, and non-fungible tokens - NFTs
• Debt owed to you, including the borrower's contact information

Your liabilities

Next, list all your liabilities. For each liability, include the type, balance and lender contact information.

Include the following:

• Secured debts
• Secured mortgages
• Unsecured debts

Access and contact information

Add information needed to access your accounts or contact people who will be affected by your estate plan to your folder as well. Include the following information:

• List of social media accounts, including login information. Consider including instructions for how to memorialize social media accounts.
• List of passwords for digital assets. Consider using an encryption method to provide usernames, passwords and PINs for those who would require access.
• Personal and family information, including the names and marital status of your children, their address and contact information, date of birth, Social Security numbers and citizenship status.
• Contact information for any of your assets' named agents. This includes powers of attorney, executors, trustees, guardians, custodians, attorneys, tax advisors, financial advisors, bankers and funeral directors.
• Copies — or the location of — your most recent important documents. These include your financial plan, estate-planning documents, wills, trusts, policies, deeds, etc.

Miscellaneous information

Chances are good that you're in the middle of revising a will, selling an asset, etc. Don't let that stop you with your estate plan.

Include a document with miscellaneous information, notes and pending questions for legal counsel. These notes may include things like:

• "We're trying to decide who should have various powers of attorney."
• "I've applied for a life insurance policy."
• "We want to sell the beach house."
• "We need to ask our attorney about providing for our special-needs grandchild."

2. Consider your estate-planning goals.

This is where things get personal. What are your needs and wishes? Think through your family's dynamics. Are your assets set up to handle your needs and cover your liabilities?

Think about the following questions:

• Who do you want your estate to go to? Keep in mind that beneficiaries can be people, charities, religious organizations or institutions. It's up to you and your personal values.
• What specific items do you want to pass on to your beneficiaries? Although financial assets are usually what comes to mind, consider all the personal items you've accumulated and who would most treasure them.
• When do you want your estate to pass to beneficiaries — during your life or after death? You may prefer to witness your heirs enjoying what you pass along while you're still alive. Or you may need all your assets to ensure your own financial security during your lifetime.
• Are there special circumstances to consider? Depending on your state, current spouses, former spouses, and nonmarried partners may require extra thought and consideration. If your beneficiaries aren't financially savvy, you may want to involve a third party to help.
• If you're a business owner, what would you want to happen to your share of the ownership, and how would the business be able to keep going without you?

3. Appoint your estate-planning team.

Think of your estate-planning team as the key roles required to execute your wishes. Assign these roles to well-qualified people you trust.

Power of attorney

Designate a person to act on your behalf for legal or financial matters. While there are many types of powers of attorney, the following two are typically high on the list.

• Durable power of attorney: Allows a person to access your finances and take care of transactions if you're incapacitated.
• Health care power of attorney: Allows a person to decide on your medical needs.

Note that you may not want to pick the same person for each role. A person you trust to react calmly and make great medical decisions might be financially incompetent.

Executor

Your executor is the person who handles your finances after you are gone. They gather your assets and handle payment of taxes and debts. The executor is also responsible for making distributions to your beneficiaries.

Trustee

If you have a trust, the trustee is responsible for managing and administering your trust's finances according to your instructions.

Guardian

If you have minor children, you need to designate someone as a guardian to care for them.

Custodian

Minors can't legally own inherited property until they reach their state's age of majority – usually 18. You may need to appoint a custodian to manage their money until then. You can have their guardian fill this role, or you can choose someone else.

4. Make sure everyone is on the same page.

To avoid family conflict after your death, or in the case of a disability, share your plans with your family or close friends. Make sure they understand the legacy you want to leave and have a chance to ask you questions or clarify your wishes. This can be via a family meeting or through individual discussions. Either way, be sure to involve each member of your estate-planning team.

This is your opportunity to share what's most important to you with the people who are most important to you. For tips on how to approach the topic of your final wishes, read our article How to talk about life insurance with your loved ones.

5. Consider estate-planning strategies.

Once you've gone through the first four, this part is easier. Here, you're thinking through the logistics of how you want your wishes to play out. Strategies can include monetary gifts to family, friends or charity while you're still living, or transfers after your death. You may also consider setting up a trust. See our article Sort out your estate plans for more information on about when to consider this strategy.

Remember to consider potential federal and state tax liability. Estate and inheritance tax laws can be complex.

Estate-planning documents

Once your strategy is in place, consider completing the following estate-planning documents:

• Last will and testament
• Durable and medical powers of attorney
• HIPAA authorization
• Living will (Directive to physicians)
• Trusts

Where to begin

Depending on your circumstances, consider seeking reputable legal, tax and financial planning counsel. These professionals can help you implement a strategy that best fits your goals, wishes and needs. If you're in the military and have access to the Judge Advocate General's (JAG) office, call for an appointment.

For more information on estate-planning and attorneys that specialize in this area, visit The American College of Trust and Estate Counsel (ACTEC).^{See note1}

Keep your estate plans up to date.

If you get married, have or adopt a child, get divorced, or move to another state, you should review and consider updating your estate plans.

You also want to make updates as you open new accounts, policies or contracts. If you inherit assets or change beneficiaries, edit your documents to reflect that.

Sometimes, changes in federal or state tax laws can impact your plans. If so, document any changes.

Even if you don't experience a life event or make changes to your assets or plans, we suggest you review these documents at least every 3 to 5 years, with proper legal counsel.