Estate Planning Documents Checklist: 9 Steps To Prepare
For the average American, the most challenging part of estate planning can be knowing where to start. Most of us know we should have some sort of plan in place to protect our assets and ensure our loved ones are cared for when we are gone, but the steps necessary to make that happen can be confusing.
Adding to the confusion, a comprehensive estate plan does more than dispose of your assets when you pass away. It should also provide your family with guidance on how you would like your affairs to be handled if you become temporarily or permanently incapacitated. Likewise, it should outline your wishes for end-of-life care if you cannot make those decisions independently.
That's why FindLaw has created a checklist with the steps you need to take to create a comprehensive estate plan that will meet your needs and those of your loved ones. Our list will help you collect documents and information necessary and how they can be used to create an effective estate plan.
1. Identify Your Goals
Your first step in creating an estate plan is to identify what you hope to achieve. Not everyone has the same goals in life, and the same is true when it comes to planning their estate. Establishing what you hope to achieve with your plan will go a long way toward determining your next steps.
Common estate planning goals include:
- Providing for your children or other loved ones
- Protecting your assets and ensuring they are correctly managed
- Avoiding the need for a probate court to distribute your assets
- Reducing or eliminating the taxes on your estate
- Creating a plan for managing your assets should you become incapacitated
- Guidance on medical treatment should you be unable to communicate your wishes
2. Create a List of Your Assets
Before you can create a plan for distributing your assets after you die, you first need to get a handle on what those assets are. When you die, the total of your assets becomes your estate. Assets that aren't included in your estate plan will still be considered part of your estate and may end up being distributed by the probate court under the terms dictated by state law.
Additionally, probate court proceedings often take upwards of six months and may require your beneficiaries to hire a lawyer to represent them. Many estate plans allow your assets to pass to your beneficiaries outside of probate, saving them time and money.
Assets that are commonly included in an estate plan include:
- Real estate
- Stocks and investments
- Cash and bank accounts
- Businesses in which you have an ownership interest
- Vehicles, including boats, cars, motorcycles, and planes
- Life insurance policies
- Retirement accounts and annuities
- Death benefits to which you are entitled
3. Determine What You Owe
Dying does not relieve you of all the debts and obligations you had when you were alive. In most cases, the debts you owe will need to be paid by your estate before it is distributed to your beneficiaries. When your debts are larger than your estate, your beneficiaries will inherit nothing. Fortunately, your creditors can't go after your beneficiaries if your estate can't cover your debts.
While debt won't pass to your beneficiaries, it can substantially reduce or eliminate your estate. Knowing what you owe helps your executor manage your estate and keeps your beneficiaries' expectations realistic. Your children should not be expecting to inherit your $1 million vacation home if you still owe the bank $1.2 million on the mortgage.
Debts that should be accounted for in your estate plan include:
- Mortgages used to purchase a home or property
- Car loans
- Credit cards
- Business loans if the business is part of your estate
- Unpaid legal judgments or settlements
- Financial obligations to a current or former spouse
Unfortunately, the federal Fair Debt Collection Practices Act (FDCPA) lets debt collectors contact any person they believe has the power to pay a deceased individual's debt to seek payment. Those include:
- Adult children
4. Identify Those You Want To Help
One of the primary reasons most people create an estate plan is to ensure their assets go to those they love and care about when they die. Many people also want to use a portion of their estate to help their church or other charitable organization. It will help if you list those you want to assist and group them by priority.
It may be hard to prioritize the people and organizations you care about, but it may be a necessary evil. That is because after you account for your assets and debts, you may discover that there is not enough for everyone to receive as much as you would like. You will probably want to prioritize your children over a favored niece or an organization you admire if there is not enough to go around. If your financial situation improves in the future, you can always amend your estate plan to include the lower-priority beneficiaries.
Identifying those you want to benefit from your estate will help you determine whether you need to name guardians for minor children or incapacitated adults. Finally, it will help establish whether your estate plan needs to include trusts to benefit minor children, adults unable to manage their finances or manage charitable donations.
5. Plan for Illness or Incapacitation
A good estate plan does more than lay out what should happen when you die. It should also explain your wishes for your medical care and the management of your finances should you be unable to make decisions on your own due to illness or other factors. Most estate plans address the following issues:
- Healthcare. You can explain what measures you would like taken on your behalf should you be too ill to make them for yourself and your choices for end-of-life care in a living will. You can also give someone the authority to make medical decisions on your behalf by giving them a healthcare power of attorney.
- Asset management. This is typically accomplished by giving someone power of attorney to manage your affairs on your behalf. Still, it can also be a backup trustee if you put your assets into a living trust and are currently serving as trustee. A durable power of attorney is when you name someone to manage your assets if you should be incapacitated.
- Long-term care. A well-written estate plan should be structured to address issues that may arise if you are in a nursing home or other long-term care facility. This may include things like purchasing long-term care insurance or structuring your affairs in such a manner that you would still be eligible for Medicaid.
6. Decide if You Need Life Insurance
Life insurance is a vital part of many estate plans, especially if you have minor children or other family members who depend on your income. But before you purchase a life insurance policy, you need to sit down and calculate how much is necessary to support those who rely on you.
A $500,000 life insurance payout may sound like a lot of money, but if you are earning $75,000 annually, that will only replace your income for fewer than seven years. That may not be nearly long enough if you have young children. You probably want to speak to an estate attorney or a financial advisor to calculate how large a policy you will need to provide support for your dependents.
Since life insurance benefits pass outside of a will or probate, you should be careful in naming who should receive your death benefit and keep them updated to reflect any life changes. If you forget to include a beneficiary, it usually takes court action for them to receive any portion of your death benefit. Such cases are generally time-consuming and expensive for the overlooked beneficiary. Also, they may not be successful.
If your children are minors or you would like the benefit to go to someone who is disabled and unable to take care of their affairs, it is generally recommended that you create a trust to receive the benefit on their behalf. Life insurance policies do not allow direct payouts to children under the age of 18.
7. Plan for the Estate Tax, if Necessary
The estate tax is less of a concern than it was a generation ago. That's because Congress has been steadily raising the estate tax exemption in recent decades, and it no longer applies to as many American estates as it did a few decades ago. For 2021, all individual estates valued at less than $11.7 million don't need to pay the tax. That is a significant increase from the $600,000 exemption that applied in 1997.
Congress has also reduced the bite the tax takes out of your estate in recent years. In 1997, the maximum estate tax rate was 55%. The rate dropped to 40% after enacting the 2017 Tax Cuts and Jobs Act (TCJA).
If the total value of your assets is greater than $11.7 million, there are still steps that you can take as part of your estate plan to minimize the estate tax the estate must pay. In many cases, you can move assets into trusts set up to pass them to your beneficiaries outside of your estate. Trusts exist as independent entities, and any assets transferred to a valid trust will not be included in your estate for tax purposes.
It may seem that the estate tax exemption is so high that it would be a waste of time and energy for most people to plan for it. Still, the exemption is set to drop significantly in January 2026 because the changes instituted by the TCJA expire at the end of 2025. If Congress does not extend the TCJA, the exemption is expected to drop to roughly $6.5 million on Jan. 1, 2026.
8. Decide if You Need to Create Trusts
A trust is a legal entity created to hold property on behalf of one or more beneficiaries. The person or organization who makes the trust through a will or trust agreement is known as the "grantor." The assets are managed by a trustee responsible for acting on behalf of the beneficiaries and according to the grantor's wishes.
Why Create a Trust?
Two of the biggest reasons trusts are used in estate planning is to pass property outside of probate and minimize the estate tax on assets transferred to the trust. Other uses for trusts in estate plans include protecting assets from creditors and controlling the distribution of assets to beneficiaries.
Probate is the process through which a court distributes a deceased's assets either under the terms of a will or, if there is no will, under the terms laid out in an estate's intestate laws. Passing assets to beneficiaries outside of probate reduces the time and expense of probate proceedings.
Trusts help avoid the estate tax by letting you pass assets to your trust while you are alive, so they will not be included in your taxable estate. However, as a separate entity, any income earned by the trust may be subject to federal and state income taxes.
Types of Estate Planning Trusts
- Revocable living trusts are sometimes called "living trusts" and are created during the grantor's lifetime, and the grantor serves as its initial trustee. That means the grantor can change the terms of the trust, the property held in the trust, and revoke the trust during their lifetimes. When the grantor dies, the revocable living trust becomes an irrevocable trust.
- Irrevocable trusts can't be changed once they have been established, even if the grantor is the one seeking to make the changes.
While moving your assets to a revocable living trust provides you with greater flexibility, it offers little in the way of asset protection because you still maintain control over the trust. In most cases, your creditors can't access any assets held in a valid, irrevocable trust.
9. Determine the Documents You Will Need
After you have laid out everything that needs to be addressed in your estate plan, it is time to draft the legal documents to ensure your wishes are followed. These documents often include:
- A will
- One or more trust agreements
- Medical power of attorney
- Financial power of attorney
- Guardianship designations
- Insurance policies
- Titles and property deeds
While it is not a legal document, it is often a good idea to create a document that gives your family or executor information on things like your bank account passwords and how to access digital files, like important documents and family photos. Additionally, they should know your Social Security Number in case it is needed.
Additional Questions? Speak to an Attorney
Estate planning can be a complex process that often involves the creation of legal documents that may need to stand up in court. If you have any questions regarding which documents should be included in your estate plan or how they should be drafted, speak with a local estate planning attorney. They can guide you through creating a well-documented plan that ensures that your wishes are followed.
Can I Solve This on My Own or Do I Need an Attorney?
- DIY is possible in some simple cases
- Complex estate planning situations usually require a lawyer
- A lawyer can reduce the chances of a family dispute
- You can always have an attorney review your forms
Get tailored advice and ask your legal questions. Many attorneys offer free consultations.