An Estate Planning Checklist: 5 Ways to Protect Loved Ones | American Funds

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Creating a Financial Plan

JUNE 16, 2017

An Estate Planning Checklist: 5 Ways to Protect Loved Ones

You’ve worked hard to accumulate your wealth. An estate plan can help you leave a lasting legacy.

Estate-planning attorney Austin Frye has witnessed many sad situations, but one in particular stands out.

One of Frye’s clients had a sister who, six months before she passed, drafted a will leaving her entire estate to her six siblings. They assumed they would inherit the $600,000 in her 401(k) account, but they were wrong. The woman had never updated her beneficiary designation following her divorce, so the 401(k) went to her ex-husband – someone she hadn’t spoken to in 25 years. Without a comprehensive estate plan, her final wishes went unfulfilled.

“Everyone needs some form of an estate plan,” says Frye, who is also a certified financial planner and the president of Frye Financial Center. It enables you to control how, and to whom, your assets will pass when you’re gone and is an essential part of your larger financial plan.

Estate plans aren’t just for the very wealthy. In fact, a recent American Funds survey found that among all investors working with financial advisors, estate planning is one of the most important topics discussed.

If you haven’t thought about estate planning yet, here are five things you can do to get started.

1. Think about what’s important to you.

Determine your priorities by asking yourself questions like:

  • Whom would you like to inherit your assets?
  • How do you want your estate to be divided?
  • Do you have philanthropic goals?
  • Are you worried about whether your heirs can responsibly manage an inheritance?
  • Do you have anyone in your family with special needs?

2. Write a will and have an attorney review it to confirm it is valid.

A will can lay out your final wishes, designate who will handle your affairs and specify who will inherit certain assets. It can even determine who will be the guardian of your children. Without a valid will, the state may decide these things for you, and the outcome might not be what you intended.

In many states, for instance, an estate might be shared by the surviving spouse and children if there’s no will. If you want your spouse alone to inherit your estate, your will needs to make that clear.

3. Update your beneficiaries.

Wills are important, but they only go so far. Many types of property, such as retirement accounts and life insurance, pass to a specifically named beneficiary, regardless of what's in the will. Likewise, a will won't affect jointly owned property.

“One of the most common mistakes people make is thinking that a will and a trust control everything. In fact, it’s often a small percentage of your assets,” Frye says.

That’s why it’s critical to periodically check how these accounts are titled and whom the beneficiaries are, especially when you have a life-changing event, such as marriage, divorce or parenthood.

4. Write down your contingency plans and have an attorney confirm they are valid.

Estate planning isn’t only about what happens after you’re gone. You can also provide instructions now in the event you're unable to make medical or financial decisions on your own in the future.

Everyone should consider three important legal documents explaining how they want their health and financial affairs to be handled:

  • A living will dictates what type of medical treatment you want at the end of your life.
  • A health care proxy names someone to make medical decisions for you.
  • A durable power of attorney appoints someone to make financial decisions for you in the event you can’t do so on your own.

“These documents not only allow you to choose your decision-makers but they protect your family members from having to go through a guardianship proceeding,” notes Melissa Negrin-Wiener, a partner at the law firm Genser Dubow Genser & Cona, who specializes in asset protection planning.

5. Consider whether you need a trust.

A trust can be useful where a will falls short. It is a legal arrangement by which one person (a trustee) holds assets on behalf of another (the settlor) for the benefit of a third party (the beneficiary).

Trusts can also help you set conditions for your heirs. If your child isn’t ready to manage an inheritance, for example, a trust can dictate under what circumstances that child will receive a share of the estate.

A trust can also help minimize estate taxes and even plan for future needs of a disabled dependent.

The Bottom Line

“It’s a mistake to do nothing,” says David Mendels, director of planning at Creative Financial Concepts. “If there is anyone you care about, you need a plan.”

When it comes to your loved ones – and your legacy – don’t leave anything to chance.


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Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not to be comprehensive or to provide advice. Investors should consult their tax or legal advisors.