It’s been said that there’s “no time like the present.” That’s especially true when it comes to your estate plan. Even though creating an estate plan may seem overwhelming, there are several “top priority” items you should tackle first. Failing to do so can leave your family at a loss if you die unexpectedly.
Appoint an executor
Don’t leave the burden of managing 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 perform 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.
After you’ve named an executor, 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.
Create health care directives
Complex 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.
Form a gifting strategy
Most likely one of your top priorities 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 2024, you can shelter up to $13.61 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.
Gift tax exclusion. Under the annual gift tax exclusion, you can give each recipient up to $18,000 in 2024 without any gift tax liability, thereby removing assets from your taxable estate.
These two provisions may be coordinated with other strategies, such as using a trust, that maximize the tax benefits while offering other advantages.
Take the next steps
There are many hurdles to overcome in estate planning. They can include potential estate taxes, complex tax laws and a lengthy probate process. But the biggest obstacle is often self-imposed: procrastination. Now’s the time to take the first steps to form your estate plan. Your estate planning advisor and attorney can be vital resources in helping you achieve your goals.
