Planning for the future is a vital aspect of responsible adult life, and it involves more than just setting financial goals or making a will. It involves creating a comprehensive estate plan that accounts for various contingencies and offers peace of mind that your loved ones will be taken care of in the event of your passing. However, a static estate plan may not account for the ever-changing circumstances of life, which is why periodic reviews and updates are crucial.
As the new year begins, it's an excellent opportunity to reassess and make any necessary changes to your estate plan. By taking this proactive step, you can stay on top of any new developments in your life, financial situation, or tax laws and make adjustments accordingly.
In this article, we'll delve into the key items to review at the beginning of the year to ensure your estate plan remains current and effective, so your assets are handled appropriately.
What Items Should I Review at the Beginning of the Year for My Estate Plan:
Estate planning is an essential part of any comprehensive financial plan. It involves taking the necessary steps to ensure that your assets are distributed according to your wishes after you pass away, as well as planning for incapacity and making important healthcare decisions.
While creating a comprehensive estate plan is a critical first step, it's equally important to review and update it regularly to ensure that it remains relevant and effective.
Below cited are some of the most important items that you should review at the beginning of each year as part of your estate plan to ensure it reflects your current needs:
Will & Trust:
Your will and trusts are the cornerstones of your estate plan. They dictate how your assets will be distributed after you pass away and ensure that your wishes are carried out.
At the beginning of each year, it's important to review your will and trusts to make sure that they accurately reflect your current circumstances and wishes. If you've experienced any major life changes, such as a marriage, divorce, birth, or death in the family, you'll want to make sure your will and trusts are updated accordingly. Additionally, if you've acquired new assets, you'll need to ensure that they are properly included in your estate plan.
Beneficiary designations are instructions you give to financial institutions regarding the distribution of your assets upon your death. It's important to review your primary beneficiary designations at the beginning of each year to ensure they are current, accurate, and reflect your current intentions. The beneficiary designations can supersede the instructions in a will or other instruments. Some of the most common beneficiary designation forms include:
1. Retirement accounts
2. Life insurance policies
4. Bank accounts
By reviewing your beneficiary designations at the beginning of the year, you can be sure that your physical or digital assets are distributed according to your wishes without any delays or issues.
Power of Attorney:
A power of attorney is a legal document that gives someone else the authority to act on your behalf if you become incapacitated. It's important to review your powers of attorney at the beginning of each year to ensure that the designated individuals are still appropriate and willing to act on your behalf if needed. Additionally, if your designated individuals have moved or changed contact information, make sure to update your records accordingly.
Medical directives, also known as advance medical directives or directives, are legal documents allowing individuals to make decisions about their medical treatment in advance.
These documents allow competent adults to express their medical treatment preferences, appoint a trusted individual to make medical decisions on their behalf if they become incapacitated, and provide instructions for end-of-life care. In Colorado, there are five main types of advanced medical directives which include:
- Living Will
- CPR order or do-not-resuscitate order
- Health care power of attorney
- Organ and tissue donation declaration
- Declaration for the disposition of last remains
For a complete estate planning checklist, it's important to review each document at the beginning of the year. By reviewing and updating medical directives as necessary, individuals can ensure that their wishes will be honored and their estate planning goals accomplished.
Review your property ownership records at the beginning of each year to ensure that they are properly titled and that beneficiaries and account owners are up-to-date.
If you've acquired any new assets, such as real estate or vehicles, you'll want to ensure that they are properly included in your estate plan. It's also important to check all your assets to make sure your beneficiary information is accurate.
Update Contact List:
Keep an up-to-date list of your important contacts, including your estate attorney, financial advisor, insurance agent, and any other individuals involved in your estate planning process.
At the beginning of each year, review your contact list to ensure that it's accurate and up-to-date. If any of your contacts have moved or changed contact information, make sure to update your records accordingly.
Tax Laws and Regulations:
When it comes to estate planning, tax planning is crucial to ensure that your beneficiaries are not burdened with a high tax liability. Therefore, it's important to review your complete estate plan every year to ensure that it's structured in a way that minimizes the impact of estate taxes, including the federal estate tax.
Keeping up-to-date with changes in estate tax laws and regulations is also important to ensure that your estate plan remains optimized for tax efficiency. Consulting with a tax professional can be helpful in this regard, as they can provide expert advice on personal finance and inheritance taxes as well. By taking these steps, you can ensure that your estate plan is designed to protect your assets and minimize tax liabilities for your loved ones.
Review Insurance Coverage:
Review your insurance coverage at the beginning of each year to ensure that it's adequate to meet your needs. This includes life insurance, disability insurance, and long-term care insurance.
If you've experienced any major life changes, such as the birth of a child or a change in your marital status, you may need to adjust your insurance coverage accordingly. Additionally, review your policies to ensure that your beneficiaries are up-to-date and properly designated.
To ensure your estate plan remains relevant and effective, it's important to regularly review and update it. A comprehensive estate preparation checklist should include reviewing state laws, updating your will preparation checklist, evaluating the probate process, and considering the needs of any minor children. Reviewing your estate plan at the beginning of each year can help ensure that it accurately reflects your current circumstances and wishes.
To optimize your estate plan, it's best to work with a qualified estate planning attorney or financial advisor who can help structure it to meet your specific needs. By taking the necessary steps, you can provide peace of mind for yourself and your loved ones.
What Are the Benefits Of Reviewing Your Estate Plan At The Beginning Of The Year:
Estate planning is an important part of financial security and can save your family from a potentially costly legal battle in the future. Reviewing your estate plan at the beginning of each year helps ensure that your wishes will be carried out in the event of your death.
Here are some benefits of regularly reviewing an estate plan:
1. Ensures your estate plan is up-to-date and reflects your current wishes.
2. Helps you identify any necessary updates or changes to your estate plan.
3. It provides an opportunity to add new beneficiaries or adjust the distribution of your assets.
4. Minimizes tax implications and ensures your assets are distributed efficiently.
5. Helps you avoid potential legal disputes or challenges to your estate plan.
6. Allows you to appoint or update guardians for minor children or dependents.
7. Enables you to update your healthcare directives and powers of attorney.
8. Helps you assess the financial impact of long-term care or end-of-life expenses.
9. Provides an opportunity to discuss your estate plan with your family or loved ones.
10. It gives you peace of mind knowing that your estate will be handled according to your wishes.
What are non-tangible assets in estate planning?
Non-tangible assets are assets that do not have a physical form but still hold economic value. Examples of non-tangible assets include:
1. Internal Revenue Service (IRA)
2. Brokerage accounts
3. 401(k) plans
4. Life insurance policies and other policies such as long-term care, homeowners, auto, disability, and health insurance
Can you add digital assets to your estate plan?
Unlike physical assets such as retirement plans and other estate planning documents, digital assets can also be included in your estate plan. Digital assets can include online bank accounts, emails, digital music and books, passwords to websites or social media accounts, and other online accounts. However, it is important to consider how you want these assets handled in the event of your death.
What is the first step in estate planning?
The first step in estate planning is to create a will. A will is a legal document that outlines how your assets should be distributed after you pass away. It ensures that your chosen heirs receive the assets you want to leave to them.
In your will, you can name an executor who will have the power and responsibility to pay your debts and distribute the remainder of your estate according to your wishes.