1. Stop procrastinating. People tend to think they have a lifetime to take care of their estate planning. When people ask me “How long do I have to take care of this?” I usually respond “Tell me when you are going to die and I can answer that for you.”
The vast majority of people still do not have any type of an estate plan at all, let alone one that is adequate for their needs. So, the first step is to talk to an estate planning attorney and get things moving -now.
2. Make tax-free gifts early. Most people know that each year everyone can make annual gifts to as many people as they want of $14,000 per recipient. Married couples can gift $28,000 together per recipient.
What they may not know, however, is that the best possible time to make these gifts is at the beginning of the year. That way, if something were to happen during the course of the year, the value of the gift would already be outside of the estate for estate tax purposes.
Even with very high federal estate tax exemption amounts ($5,430,000 in 2015), annual exclusion gifts can still make sense. Also, there is a move afoot by the Administration to put a lifetime limit on the total gift amount allowed.
3. Fund your living trust. If you have created a revocable trust, find out whether any assets have been transferred into it. Over the years, I have found that many clients create revocable trusts, but never use them to their full potential. A good 25% of the living trusts we see have something left out that requires that we open a succession.
If one of the major reasons you did a trust was to avoid probate, why leave it to chance that a probate will be required because you left a key asset out of your trust?
4. Check beneficiary designations. One common (and potentially costly) estate planning mistake involves outdated or never-signed beneficiary designation forms. It is extremely important to check periodically to make sure beneficiary designations are correct, especially if there is a divorce or marriage or if a previously named beneficiary, such as a parent or sibling, has died.
For many of us, life insurance policies and retirement benefits represent some of our most valuable assets. While it costs virtually nothing and takes very little time to fix or change a beneficiary designation during life, dealing with an incorrect or outdated named beneficiary after a death can be very costly and difficult, or perhaps even impossible. Life insurance, annuities and most retirement accounts like IRAs go to named beneficiaries outside of probate. No living named beneficiary = probate.
5. Review your named fiduciaries. It’s also important to choose the proper fiduciaries in an estate plan and to review named fiduciaries on a regular basis. You may have named the right person or institution at a certain point in time, but subsequent changes could have altered their situation.
Check existing documents periodically to see who is named executor (will), attorney-in-fact (power of attorney) and trustee (trust). Decide whether the choice still makes sense.
Many times younger adults name their parents who, as they age, may no longer be able to perform the expected tasks. For all of these reasons, it is important that you review the named fiduciaries and ensure you still have the right person.
-Suggested by an article in Financial Planning