When it comes to estate planning, consider taking a page out of the Boy Scouts Handbook: Be prepared. The last thing you want is for your family to be scrambling to pick up the pieces after your death. Of course, you’ll need a will as a starting point, but there are several other “top priority” items to put on your to-do list.
Name your executor
Don’t leave the burden of handling your estate to one or more family members without providing adequate direction. In fact, you can assemble an expert “team” that can help your family navigate the tricky waters.
The executor is the captain of the team. He or she should be knowledgeable, competent and willing to carry out the duties. An executor may be a family member, such as your spouse, adult child or a sibling. Other choices include a close friend or an experienced professional advisor. The executor you name will have to coordinate activities with attorneys, bankers and appraisers.
Draft a financial power of attorney
After you’ve named an executor, you can move on to other priorities. A financial power of attorney authorizes an “attorney-in-fact” to act on your behalf for financial matters. The most common power of attorney, a “durable” one, remains viable if you’re incapacitated. With another variation, a “springing” power of attorney, control doesn’t take effect until incapacitation.
Frequently, the person designated as the attorney-in-fact is the same person as your executor. His or her power may be broad, encompassing such matters as buying or selling personal property or limited to certain tasks.
Assemble health care directives
Difficult decisions typically arise near the end of a person’s life. You can simplify matters by assembling a comprehensive list of health care directives. They may include a:
Health care power of attorney. Comparable to a financial power of attorney, this document authorizes another person to make health care decisions on your behalf if you’re unable. Typically, the attorney-in-fact is a spouse, child or sibling. It may be broad or limited and expires on death.
Living will. As opposed to a health care power of attorney, a living will is reserved for end-of life situations. Depending on state law, it may allow you to express whether life-sustaining treatment should be administered in the event you’re terminally ill or injured.
A health care power of attorney and a living will may be combined into one document, depending on state law. In other states, a living will may supplement a health care power of attorney. Both documents may be coordinated with other medical directives or proxies.
Medical orders for life-sustaining treatment. This includes medical orders signed by a physician to assist patients who’ve been diagnosed with a life-threatening or terminal illness or disease. These orders may also be created if you’re not currently ill and will take effect only in end-of-life situations.
Gift and estate tax techniques
One of your top priorities likely is to ensure that your assets are passed to loved ones without adverse gift or estate tax consequences. Although sophisticated techniques can be used, two basic tax law provisions often provide a foundation:
Gift and estate tax exemption. For 2023, you can shelter up to $12.92 million from gift and estate tax, in addition to amounts covered by the annual gift tax exclusion (see below). Any unused portion of your exemption is available to the estate of your surviving spouse with a portability election on a timely filed estate tax return.
These two provisions may be coordinated with other strategies, such as using a trust, that maximize the tax benefits while offering other advantages.
What to do now
If you haven’t addressed these priorities, there’s no time like the present to get going. Rely on your estate planning advisor to provide guidance.