There’s nothing quite like the new year to make you think of fresh possibilities and new beginnings.
There’s also nothing quite like way too much turkey, wine, and football over the holidays to make you realize that you should maybe consider some lifestyle changes.
“New year, new me” and all that jazz.
You have probably already started on your list of New Year’s Resolutions: read more, get a gym membership (and actually use it this time), spend more time with family, etc.
But there is one more goal you should add to your list: organize your estate plan.
It’s easy to avoid estate planning. However, remember that an estate plan isn’t just for you. If you die without an estate plan, your loved ones will be the ones who suffer the most.
Related post: 7 Reasons People Delay Estate Planning
To help you stick to this goal, here is a handy list of 10 Estate Planning New Year’s Resolutions:
1. Get a Living Trust and/or a Last Will and Testament
You, like a majority of Americans, may not have a living trust or a last will and testament.
You may not even know what those documents do. Which one is better? Which one should you have? What are the differences between a will and a trust?
There are two main sides to estate planning:
What happens to your STUFF when you die, and
Who takes care of your SELF if you become incapacitated.
Both wills and trusts deal with the first part of that equation: they control what happens to your estate (i.e., your “stuff”, your property) after your death.
However, there are some massive differences between these two documents.
Contrary to popular belief, having a last will and testament does not avoid the need for probate. In fact, a will must be probated after your death in order to be effective.
Yes, even if you have a will, your estate must still go through probate after your death.
A fully funded trust, on the other hand, can eliminate the need for probate by providing for the transfer of assets after your death without court approval.
Related post: What is the Difference Between a Will and a Trust?
Considering that probate can easily cost upwards of $8,000+ in attorneys’ fees, court costs, and other expenses, a living trust can make things MUCH easier on your loved ones after you are gone.
2. Sign a Power of Attorney and/or Advance Directive
The second part of the estate planning equation — who takes care of your self when you become incapacitated — can be solved with a durable power of attorney and/or an advance directive for health care.
Generally speaking, a durable power of attorney gives someone the ability to act for you in financial and/or medical situations. This authority can be limited in scope (e.g., a single real estate transaction), or it can be broad (e.g., any and all healthcare and financial decisions).
An advance directive for health care — commonly called a “living will” — similarly allows you to appoint a “health care proxy” to make medical decisions for you if you are incapacitated. An advance directive also allows you to state your wishes for end-of-life care (i.e., “pulling the plug”) and organ donation.
Although wills and trusts are often the focus of estate planning, those documents generally don’t impact you during your life time. After all, you won’t need your assets after you die.
On the other hand, a power of attorney and advance directive affect you NOW while you are alive. As such, they are some of the most important estate planning documents you can have.
3. Minimize (or Avoid) Estate Taxes
The Internal Revenue Service (IRS) recently announced that the estate and gift tax exemption is increasing next year: up from $11.18 million per individual in 2018 to $11.40 million in 2019. While most of us don’t have an estate worth that much, estate tax laws can (and historically do) change.
There are a number of ways you can minimize or avoid estate taxes, including making a qualified charitable distribution (QCD) from your IRA, funding a 529 college savings account, and utilizing the unlimited marital deduction through a concept known as estate tax portability.
However, one of the most common ways to fall under the estate tax threshold is to give away your estate.
You can give up to $15,000 to as many people as you want each year without filing a gift tax return. If your estate is worth $11,415,000 on January 1, 2019, you give $15,000 to your daughter on January 2, and then die on January 3, your estate would be worth $11,400,000 (assuming you don’t have any additional income or gains in those few days) and would owe no estate tax.
Nevertheless, there can be some downsides to giving away your estate. If, for example, you give your home to a child, you cannot control who lives there or if it is sold or mortgaged or seized by your child's creditors. Gifting real estate also prevents your heirs from receiving a “stepped-up” tax basis in the property.
While gifting can be a great way to reduce the size of your estate, it should be done carefully and with the advice of an experienced estate planning attorney and financial advisers.
4. Fund Your Trust and/or Review Title
When you sign a trust document, you simply have some sheets of paper. It may be fancy paper — and it’s definitely expensive paper — but it’s still just paper. And paper alone (usually) does not avoid probate. In other words: By itself, a signed trust can be pretty useless.
A trust must be “funded” to be truly effective. Trust “funding” is the process of transferring assets from your individual name (e.g., “John Doe”) to the name of your trust (e.g., “John Doe, Trustee of the John Doe Living Trust”). If an asset is not titled in the name of your trust at the time of your death, it may be subject to probate.
Most asset transfers must be done by you rather than an attorney. However, to help you get started, we created a basic guide for funding your trust. A good rule of thumb: talk to the custodian or institution that holds or manages your asset. They should be able to tell you how to change title.
Reviewing title is still important if you don’t have a trust. Assets titled in joint tenancy or with a pay-on-death (POD) beneficiary may be able to avoid probate. However, those designations can also have unintended consequences, as they override the provisions of your will or trust.
Even if you already have an estate plan, it is a good idea to review your title in 2019 to make sure that your estate will avoid probate and your assets will go to the right people.
5. Review Your Beneficiaries
Does your will or trust accurately reflect who you want to inherit your estate? Many different factors can influence how you want your estate distributed.
Old relationships can change — divorce or separation can impact your estate plan. New relationships can emerge — through marriage, birth, or otherwise. That is why it is so important to regularly review your estate plan to make sure your assets are going to the people you want to have them.
In addition to reviewing beneficiaries in your formal estate planning documents, you should make sure assets with pay-on-death designations (e.g., retirement accounts, insurance policies, etc.) match the goals of your estate plan. Remember:
Beneficiary designations can override the provisions of your estate plan.
6. Inventory Your Assets
When you die, how will your representatives and/or loved ones know where all your “stuff” is? They may know where you bank or what cars you have. But do they know what insurance policies you own? Whether you have prepaid for funeral plans? Who is the custodian of your IRA?
To help your representative(s) administer your estate after your death, you should compile and regularly update an inventory of all your assets. Include a description of the assets, where it is located, and where you keep the title (if any).
You may also want to make a written list of personal effects, jewelry, and sentimental belongings and decide who you want to have them. To make those gifts legally effective, you should include them in your formal estate planning documents or refer to the written list in your trust or will.
7. Create a Digital Estate Plan
Who gets your Facebook account when you die? What happens to your Twitter? Your photos on Flickr or Instagram? Your e-mail account? Your Bitcoin? The Digital Age and the advent of Internet- and cloud-based assets have created a new category of estate planning for digital assets.
Your Internet accounts are your property, and, like your other property, you should provide instructions for its disposition after your death. This set of instructions is often referred to as a “digital estate plan.” For more information, see our guide on how to create a digital estate plan.
Failing to plan for your digital assets could lead to lost family history and treasures (such as pictures or diaries) and may even leave your estate vulnerable to identity theft. Get proactive in 2019 and secure your digital identity and online assets.
8. Draft an Estate Planning Letter of Instruction
Managing an estate is a tough job for anyone. If you died today, would your representatives or loved ones even know where to start? Would they feel overwhelmed? Frustrated?
Now, imagine that you could stand over the shoulders of your spouse or children or other loved ones and tell them exactly what needs to be done. That is the purpose of a letter of instruction.
An estate planning letter of instruction is meant to help guide your representatives through administering your estate. While there is no right or wrong way to write a letter of instruction, most people at least include what estate planning documents they have, where their assets are located, and what their representatives need to do next.
Very likely, your representatives will be your loved ones. And your loved ones will be going through a great amount of stress and grieving after your death. You can ease their burden tremendously by leaving detailed, step-by-step instructions to help them through the process.
9. Hold an Estate Planning “Fire Drill”
A letter of instruction is great, but writing is sometimes vague and things often get lost in translation. That is why you should also conduct an estate planning “fire drill.”
Just as fire drills in elementary school let you know what to do in the event of a fire, an estate planning “fire drill” is meant to let your family know what to do after your death. Pretend you have died and walk your family through the process of everything they must do to set your affairs in order.
Not only is this type of meeting a good opportunity for you to tell your family about your estate plan, it is also a great time to answer any questions and resolve family disputes which could potentially (and negatively) impact your estate in the future.
10. Review Your Estate Plan With an Attorney
Estate planning can be complex and confusing. These New Year’s Resolutions are a great place to start, but there is no “one size fits all” solution. Therefore, you should consult with an attorney to determine what estate planning options (or updates) are best for you.
To create your estate plan — or to learn how to improve your existing estate plan — and organize your affairs this year, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]
