How to Update or Start Your Estate Plan

1. Make an Estate Planning Personal Balance Sheet

It’s important to create a complete list of your assets with an estimate of each asset’s value - we’ll call this your Estate Planning Personal Balance Sheet. 

Your assets can be divided into two different categories: 

• Assets you own a direct title to, like a house, vehicle, bank account, or investment account.
• Assets intended for payout later, like retirement accounts and life insurance.

The following assets should be included on your balance sheet:

• Real property: Any land, building, or residence you own or have a mortgage on.
• Bank accounts: Checking, savings, certificate of deposit, and money market accounts.
• Digital assets: Many estates overlook digital assets such as airline miles, credit card reward points, cryptocurrencies, and log-in credentials. However, this blind spot could lead to identity theft and unnecessary taxation.
• Vehicles: Automobiles, boats, motorcycles, and aircraft.
• Retirement accounts: General pension, 401(k), 403(b), IRA, Simple IRA, SEP IRA, Roth IRA, HSA, and ESA.
• Investments: General investment account, mutual funds, ETF, stocks (equities), bonds, money market, and Treasury bills.
• Insurance: Term, whole life, split-dollar, group life, and annuity.
• Promissory notes: If you have loaned money to a family member with a written promise of repayment, it’s crucial that you include the amount in your estate.
• Business interests: You will need an attorney to help them determine which business assets you hold (and can place in a trust) and which assets belong to the business structure.
• Anticipated inheritance, gifts, and lawsuit judgments: If you have inherited money or received a financial windfall, avoid possible tax penalties by working with an advisor to plan what to do with it now (see below).

‍2. Review and create a plan for outstanding debt

If you own any debt, that debt will transfer to your estate. Make a note of all outstanding debt on your balance sheet.

Debts are always going to be the responsibility of the estate. As long as they’re legitimate debt, like medical bills, hospital bills, credit card bills, they don’t go away just because you die.

Depending on what assets you own, your named executor or trustee will have to gather information about what debts are outstanding at death and deal with it at that time. The beneficiaries receive whatever remains at the end of that repayment process.

If you have more debt than assets, it’s also possible that your beneficiaries won’t get anything. Protect beneficiaries from future pain by working with an advisor to plan out a debt-repayment plan.

The better organized you can be during life, the easier it is for whomever has to step into your shoes to manage things.

3. Designate your fiduciary and beneficiary

A fiduciary is a person or entity responsible for carrying out your wishes. The fiduciary makes crucial decisions on your behalf in the event of death or incapacitation. In your documents, the people you select will play essential roles, such as trustees of your trust or executor of the will. For married couples, spouses typically choose one another as their primary fiduciaries. 

Here are the types of fiduciaries you may need to designate:

Executor: The executor takes the financial actions needed to settle the estate under the terms of the will after you die.‍

Trustee: The trustee is responsible for managing the assets in your trust during life (if you are incapacitated) or after death. In estate planning documents, the person you designate as your primary fiduciary also serves as your trustee. This means meeting your trust beneficiaries' needs using trust assets in a way that aligns with the wishes outlined in your trust document. Although the trustee manages the trust's assets, the trustee does not personally own them.‍

Guardians: If you have minor children or an adult dependent, the guardian cares for them and is legally responsible for them. Guardians are usually trusted family members who you are confident could provide sufficient care for the child or adult dependent, factoring in their age, health, and financial stability.‍

Attorney-in-Fact/Agent: The person you designate as your primary fiduciary will serve as your attorney-in-fact or “agent.” Your agent will be responsible for managing assets with titles in your name (which are not otherwise titled in the name of a trust). They act per any directions that you have included in a Power of Attorney document.

It’s a big decision to appoint a fiduciary. Determine the best candidates to manage your estate by asking three critical questions:

1. Do you trust them to represent your family’s best interests?
2. Are they financially responsible?
3. Are they likely to be alive when you die?‍

Designate beneficiaries

A beneficiary is a person or entity you name as a recipient of assets upon death or incapacitation. You can give beneficiaries access to trust assets up front or over time. You can name more than one beneficiary, who can be any of the following:

An individual (or group of people)

The trustee of your trust.

A charity or nonprofit

A minor (child under 18 years of age)

Some of the biggest mistakes in estate planning involve naming (or not naming) beneficiaries or naming the wrong people or entities as beneficiaries. If you don't name a beneficiary for an asset, the asset will have to go through probate. Probate could be a lengthy and costly process that can cause undue hardship on your relatives.

Regularly check to make sure your fiduciary and beneficiary designations are up to date and reflect significant life changes like births, deaths, marriages, and divorces. It’s also essential to have a plan in the event of the death of fiduciaries and beneficiaries.

4. Update or create your revocable trust

The revocable trust is the primary estate planning document. It’s also known as a “living trust” or an “inter-vivos trust,” and not to be confused with a “living will.”

The purpose of the trust is to help your beneficiaries avoid probate (the judicial process whereby a will is "proved" in a court of law) upon your death. 

If you have a trust, you don't have to go to court to transfer any of those assets to your intended beneficiaries. You can deal with it privately.

If you are married, you can determine how you want your trust assets to be divided both after your death and after your spouse’s death.

The revocable trust is a living document—you can change it at any time, for any reason. After an eventful year, it’s understandable if you reassessed your priorities for what you want to leave behind. If you have a revocable trust, make sure to update it when changes come up that may impact how your wishes will be carried out after you’re gone.

5. Create or review your “pour-over” will

The will acts as a safeguard to distribute any property that has not already been transferred into the trust.

Many people mistakenly think that having a will is enough to prevent possible disputes over inheritance or keep things from going into probate. 

What people don't realize is if you just have a will, you still have to go through the court process to transfer those assets to your intended beneficiaries. In some states, like California, it's a very long and onerous process. It could take up to two years to do. It can be very expensive versus if you have everything set up in a trust. A pour-over will ensures that any unassigned assets go into your trust upon death.

It's essential that you safeguard your assets against intestate succession laws—the unique (and convoluted) state laws that govern how unassigned property passes through a line of inheritance.

If you don't have a pour-over will in place, now is the time to set one up. With a pour-over will, if anything happens to you in the next year, any new property you acquire will automatically pass into your trust—and out of the hands of the government.

6. Review or draft power-of-attorney documents

There are two types of power-of-attorney documents: the durable power of attorney and health care power of attorney (aka advance medical directive). 

Let’s examine how these documents differ:

• Durable power of attorney: You designate an agent to make decisions about finances (other than assets owned by your trust) on your behalf in the event of incapacitation.‍
• Health care power of attorney (aka advance health care directive): You designate an agent to make medical decisions on your behalf when you’re no longer able to. In this document, you can outline your wishes about medical care and treatment, and the disposition of your remains (e.g., organ donation, burial, cremation, etc.). You can choose to have this document effective immediately or only upon incapacitation. A power of attorney is no longer effective once the person who creates it is deceased. This document can sometimes be referred to as a “living will.”

7. Write or update your tangible personal property memo

You may have personal property that holds sentimental value (e.g., art, jewelry, heirlooms, and household goods) that you wish to assign to beneficiaries.

The tangible personal property memo can act as a safeguard for your wishes. You must sufficiently name each beneficiary of personal property and sufficiently describe in detail the property the beneficiary is to receive.

The tangible property memo can also act as an explanatory letter so you can express your personal reasons for leaving property to certain beneficiaries.

It's always a good idea to provide some kind of letter, whether it's to the trustees or to the beneficiaries, indicating “here's why I did what I did so that you understand, and you don't fight about it.”

Estate planning is a crucial aspect of financial planning that all physicians should prioritize. It provides peace of mind knowing that your loved ones will be taken care of after you're gone, and it also ensures that your assets are distributed according to your wishes. By following the checklist we've provided, you can get started on estate planning or keep your plan up to date and take the necessary steps to protect your future and that of your loved ones. Remember, estate planning is not a one-time event but an ongoing process, so it's important to regularly review and update your estate plan as your circumstances change. With proper estate planning, you can safeguard your legacy, minimize taxes, and ensure that your hard-earned assets are used to benefit your loved ones for generations to come.