You are an Estate owner. However hard to believe, that is the absolute truth. In fact, almost everyone is an estate owner. Estate is not only for the high and mighty, it consists of everything that you own, tangible and intangible. Your home, land, car, coins, artwork, other real estates, furniture, savings account, investments, life insurance, other personal possessions. Irrespective of how large or small they are, they collectively make up your estate. The one thing that one should remember while thinking about estate planning is, no matter what you one, you can't take it with you once you die. 

When that dreadful day comes, and it will, wouldn't it be better if your possessions were given to the cause, organization, or a person you cared about the most? To make sure that happens, one needs to provide detailed instructions stating who gets what, how much, and when. What you also need to think about (that most people fail to do) is a backup. Always have a backup and a backup of that back (should things go south). With that being said, you’d want your loved ones, or the cause to inherit your possessions with the least tax burden, legal fees, and court costs as possible (they’re best avoided). 

That in summary is Estate Planning.


Focused Pointers:

  • Estate planning involves determining how an individual’s assets will be preserved, managed, and distributed after death or in the event they become incapacitated.

  • Planning tasks include making a will, setting up trusts and/or making charitable donations to limit estate taxes, naming an executor and beneficiaries, and setting up funeral arrangements.

  • A will is a legal document that provides instructions on how an individual’s property and custody of minor children, if any, should be handled after death.

  • Various strategies can be used to limit taxes on an estate, from creating trusts to making charitable donations.

It all begins with the very basic step of writing a will. But don't be mistaken, it doesn't end there. Other major estate planning tasks include but aren't limited to:

  • Limiting estate taxes by setting up trust accounts in the names of beneficiaries.

  • Establishing a guardian for living dependents.

  • Naming an executor of the estate to oversee the terms of the will.

  • Creating or updating beneficiaries on plans such as life insurance, IRAs, and 401(k)s

  • Setting up funeral arrangements.

  • Establishing annual gifting to qualified charitable and non-profit organizations to reduce the taxable estate.

  • Setting up a durable power of attorney (POA) to direct other assets and investments.

Now that we have established what Estate Planning is and why is it important, let's look at the basic steps to get things rolling. 

Your stuff should be Inventoried:

It is easy to fall into the trap of thinking one doesn't have much to justify a detailed inventory exercise. But, once you start looking around and take into consideration even the smallest of things, you might be in for a pleasant surprise.

  • Homes, land, or other real estates

  • Vehicles including cars, motorcycles, or boats

  • Collectibles such as coins, art, antiques, or trading cards

  • Other personal possessions

  • Checking and savings account and certificates of deposit

  • Stocks, bonds, and mutual funds

  • Life insurance policies

  • Retirement Plans such as workplace 401(k) plans and individual retirement accounts

  • Health savings accounts

  • Ownership in a business

Once you have listed down the above mentioned, it comes down to assigning a value to them. For some assets, outside valuations like these can help:

  • Recent appraisals of your home

  • Statements from your financial accounts

When you don’t have an outside valuation, value the items based on how you expect your heirs will value them. This can help ensure your possessions are distributed equitably among the people you love.

Always account for your families needs:

Once you have an estimate of what comprises your estate, thinking of protecting and distributing the same should be the next step.

  • Do you have enough life insurance? This may be important if you’re married and your current lifestyle — and monthly mortgage payment — requires dual incomes. Life insurance maybe even more important if you have a child with functional needs or college tuition bills.

  • Name a guardian for your children — and a backup guardian, just in case — when you write your will. This can help sidestep costly family court fights that could drain your estate’s assets. Also, it is always better to have a backup, and is even better to have a backup for the backup. 

  • Document your wishes for your children’s care. Don’t presume that certain family members will be there or that they share your child-rearing ideas and goals. Don’t assume a judge will abide by your wishes if the issue goes to court.

Establish your directives:

An estate plan is incomplete without important legal directives.

  • A trust might be appropriate. With a living trust, you can designate portions of your estate to go toward certain things while you’re alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing probate, which is the court process that may otherwise distribute your property.

  • A medical care directive, also known as a living will, spells out your wishes for medical care if you become unable to make those decisions yourself. You can also give a trusted person medical power of attorney for your health care, giving that person the authority to make decisions if you can’t. These two documents are sometimes combined into one, known as an advance health care directive.

  • A durable financial power of attorney allows someone else to manage your financial affairs if you’re medically unable to do so. Your designated agent, as directed in the document, can act on your behalf in legal and financial situations when you can’t. This includes paying your bills and taxes, as well as accessing and managing your assets.

  • A limited power of attorney can be useful if the idea of turning over everything to someone else concerns you. This legal document does just what its name says: It imposes limits on the powers of your named representative. For example, you could grant the person the power to sign the documents on your behalf at the closing of a home sale or to sell a specific stock.

  • Be careful about who you give power of attorney. They may have your financial well-being — and even your life — in their hands. You might want to assign the medical and financial representation to different people, as well as a backup for each in case your primary choice is unavailable when needed.


*As a thumb rule, always review and then re-review your beneficiaries. 

  • Make sure the right people get your stuff. People sometimes forget the beneficiaries they named on policies or accounts established many years ago. If, for example, your ex-spouse is still a beneficiary on your life insurance policy, your current spouse will get the bad news — and none of the policy’s payout — after you’re gone.

  • Don't leave the beneficiary section blank. If the section remains blank, when your account will go through probate, it may be distributed based on the state's rules regarding who gets the property. 

  • Keep reviewing and updating the beneficiary section in all your accounts and policies. Things change and we tend to forget who we named as the beneficiary. 

Keep a note of the state estate tax laws. On the Federal Level, only very large estates are subject to estate taxes. For 2020, up to $11.58 million of an estate is exempt from federal taxation. In 2021, up to $11.7 million is exempt. Irrespective of the above stated, some states levy an estate tax on estates valued below the prescribed amount by the federal government.
In addition to the above stated, some states also levy inheritance taxes. This translates to, whosoever inherits your money will have to pay inheritance taxes on it. 

*Never shy away from professional help. 

Special Circumstances:

Two of the most common special circumstances that may affect estate planning decisions are blended families and concerns about families with special needs. Of course, there may be other factors that affect a particular situation.

Blended families can make estate planning more complicated. For example, a parent may want to leave a different inheritance to biological children than to stepchildren, or the parent may want to protect their biological family's inheritance if a spouse remarries. A solid estate plan can help prepare for these and other scenarios. Consult an attorney to discuss your particular circumstances. 

Regarding disabilities, there are specific trusts that are set up for the benefit of a beneficiary who is disabled, structured in a way that allows the beneficiary to continue to qualify for public assistance, such as Social Security Disability Insurance. Again, an attorney can help establish a trust that will meet your specific situation.

To cover all your estate planning credits, we have a broad range of webinars specially designed for Estate Planning, and the best part is, it doesn't end there. Some of the hot topic about Estate Planning on myCPE are:

At myCPE we regularly publish webinars about the latest developments in the Finance and Accounting world.