What’s the state of your estate as we move towards the end of 2023? 

It’s natural to take stock of how your circumstances have changed over the last 12 months. Maybe you’ve become a parent or graduated to an empty nester. Maybe you got married, received an inheritance, or fought off a serious illness. 

Innumerable “life events” can occur over the course of the year, and lots (if not most) of them impact your estate. But does your estate reflect the important events of the year? 

Rest assured, readers. Year-end is a perfect time for estate planning, whether you need to make a quick update, create one from scratch, or anything in between.  

How to get the ball rolling on your year-end review

End-of-year estate planning tasks typically fall into two categories: updating existing plans or starting from scratch. 

If you already have an estate plan…

If you already have an estate plan, you should be reviewing it annually to ensure your beneficiary designations are up-to-date, your assets are documented accurately, and your executors/trustees are aware of applicable changes.

Meeting with your estate planning attorney regularly is also the best way to learn about new tax laws or other estate planning considerations you should be aware of.

If you don’t have an estate plan…

If, like 67% of Americans, you don’t have an estate plan yet, the best time to start is now. 

It can be uncomfortable to talk about, but working with an experienced estate planning attorney can make the legal process less overwhelming. They can also help you discuss it with your family and friends, professional advisors, business partners, and anyone else who might be impacted by it. 

End-of-year estate planning checklist

Don’t leave your EOY estate planning TBD. This checklist outlines tasks that need to be done and questions you’ll need to ask. 

Document your assets 

You can’t create or update an effective estate plan if you haven’t comprehensively documented your physical and non-physical assets.

Examples of physical assets include but are not limited to:

• Real estate properties (land, residential properties, commercial buildings, etc.)
• Automobiles, boats, etc.
• Machinery and tools
• Intellectual property
• Jewelry, art, and other collectibles 

We recommend documenting anything $1,000 or more in value that can go missing. Appraisals, pictures, and the location of the item are key. 

Examples of non-physical assets include:

• Bank accounts
• Investment portfolios
• Retirement accounts (401k, IRA, etc.)
• Life insurance policies
• Memberships that come with accidental life insurance or other compensation

Not only does a clearly documented list of assets help your attorney create the right estate planning strategy for you, but it also reduces challenges once your estate plan is established.  

Going through the documentation associated with each asset will help you figure out which assets have not been updated to match your current life situation. What’s more, executing your estate is more straightforward when you prepare a consolidated list documenting the pertinent information (locations, online passwords, account numbers, contact information, etc.) related to each asset. 

Document your debt

Your estate plan should deal with your assets and your liabilities. Documenting your debt now means your executor will be able to settle your estate faster and more easily if everything is inventoried now. 

To do this, create a document that includes account numbers, company name, and contact information for your open credit cards, auto or student loans, mortgages, home equity lines of credit, liens or court-ordered judgments, etc. 

You can also use your free annual credit check to find open lines of credit you may have forgotten about.

Update (or create) a living will and power of attorney

A living will is a legal document that details your wishes for medical treatment and life-saving interventions should you become incapacitated or otherwise unable to make decisions for yourself. It should include how you’d like your medical team to handle things like resuscitation, ventilator use, and your wishes for organ and tissue donation.

It’s also a standard recommendation to include a power of attorney in your estate plan. A power of attorney (POA) is a legal document that gives another trusted individual the authority to make decisions on your behalf when you can’t. 

In estate planning, two of the most common are a financial POA, in which you give someone the power to manage your money, and a medical POA, in which you choose someone to make medical decisions in accordance with your living will and advance directive. Make sure to look at both!

Consider a trust

Thanks to the term “trust-fund baby,” many people think trusts are only for the wealthy. That’s not true, and not making trusts part of an estate planning strategy can be a serious estate planning mistake.

When you place assets in a trust, ownership transfers from you to a separate legal entity. Depending on the type of trust, this transfer can keep the assets out of your estate and protect them from creditors after your death. 

Trusts also give you a measure of control over how the assets are eventually distributed, which becomes important if you’re worried the beneficiaries may not be mature enough to handle a windfall.

There are many different types of trusts commonly used in estate planning, including special needs trusts, domestic asset protection trusts, and generation-skipping trusts. No matter what kind of trust you use, most trusts fall into one of two umbrella categories: revocable trusts and irrevocable trusts.

Revocable trusts

A revocable trust, sometimes called a living trust, is the most flexible type of trust. The grantor, or person placing assets in the trust, can name themselves as trustee and make changes to the trust as long as they remain competent. 

Revocable trusts help your estate avoid probate and grant more privacy than a will, but they do not reduce your tax liability.

Irrevocable trusts

Conversely, the terms of an irrevocable trust usually cannot be changed without a court order or beneficiary approval (or both). As the grantor, you will lose full control over any assets placed in the trust. The biggest advantage to an irrevocable trust is that the assets are removed from your estate and, therefore, are nontaxable. 

This makes irrevocable trusts particularly popular for individuals whose estate is greater than the federal estate tax exemption amount ($12.92 million for individuals and $25.84 million for married couples).

Look into annual gifts and other tax exemption tools

A common misconception about estate planning is that it’s only about what happens after you pass away. While that is estate planning’s primary function, what you do while you’re still alive can have a tremendous impact on what your estate’s final execution looks like.

Once you have a will, medical and financial powers of attorney, and a trust, you’re ready for the estate planning advanced toolbox. Whether you use a 529 Plan to save for college or employ an aggressive annual gifting strategy, capitalizing on tax-free options for savings and other gift and estate tax exemption programs can increase your estate’s long-term value while decreasing your tax burden.

Tax law is complex, and it’s important to find an estate planning attorney and tax professional you trust to keep you on the right side of the code. It can mean a difference of tens of thousands of dollars (or more).

Update your estate administrator (and make copies)

You should always update your estate administrator or executor anytime you make updates to your estate plan. We also recommend that you make several copies of your plan and make sure key family members, advisors, and beneficiaries know where to find them.

Work with an estate planning attorney to ensure all your boxes are checked

Your estate plan, whether current or future, should reflect the big events from this last year. From new jobs to new family members, make sure you’ve taken the steps needed to protect what matters most to you. 

Contact the service-driven team at SMC ESQ PLLC for a consultation today.