The next four decades will see one of the largest transfers of wealth, but while interest in estate planning increases with household income, many wealthy households are not prepared to appropriately pass their assets to the next generation. Estate planning is a component of financial planning that many are reluctant to tackle, but an estate planning checklist is a recommended first step in initiating the process of organizing one’s estate.
An estate plan can ensure assets are divided in keeping with an investor’s wishes, and can help minimize the amount of taxes due on an estate. Estate planning can also provide for dependent children, direct end-of-life care and award power of attorney should an investor become incapable of managing his or her finances.
More than one-third (34 percent) of affluent investors surveyed by Spectrem Group in its Perspective Money in Motion: Asset Transfer and the HNW said that estate planning is the component of financial planning with which they would most like help from their financial advisor. This was almost double the percentage as those who said they wanted help from their financial advisor with Social Security benefits (19 percent).
Experts recommend an estate planning checklist in consort with a financial advisor, legal and tax advisor that will help ensure a smooth legacy transfer. Among the basic items on that list:
Make or update your will: In a will, you declare how you want your money and possessions to be distributed upon your passing. It also allows you to state your wishes regarding the guardianship of your minor children. Without a valid will, the court or state laws could make those decisions that will not necessarily be in keeping with your wishes.
Consider a trust: While nearly two-thirds of Main Street investors (with a net worth between $100,000 and $1 million, not including primary residence) have a will, a mere 13 percent have a trust, according to Spectrem Group research. The percentage of affluent investors with a trust increases with wealth. With a trust, survivors will be spared going through probate court.
Create a letter of instruction: This could include funeral instructions, people to contact and where key financial papers and accounts can be found. Make access arrangements for your safe deposit box, which is generally not opened until probate. Experts recommend copies of your will and other important documents are available outside of your safe-deposit box. A separate Millionaire Corner survey of affluent investors said they feel confident that they could locate the necessary financial documents in the event of their spouse’s death. But just in case.
Buy or update life insurance: This would provide survivors with an immediate source of cash exempt from federal and state income tax. Experts recommend policies be reviewed every two to three years to make sure your wishes are still accurately reflected.
Review retirement plans such as IRAs or 401(K)s: These are just some of the basic items recommended for an estate planning checklist, which can help demystify the daunting process and help you get on with the business of ensuring a smooth and orderly legacy transfer.