Estate planning is not always a fun topic to think about, but it’s an essential part of ensuring that your wishes are carried out in the event of your incapacity or death. A well-crafted estate plan can help protect your assets, minimize taxes, and make sure that your loved ones are taken care of when you’re no longer able to. Here are some best practices to consider when creating your estate plan.

  1. Beneficiary Designations: Ensure that you have correctly designated beneficiaries for all your accounts and assets. Many people are not aware that named beneficiaries supersede wills and trusts. Your will or trust doesn’t control the distribution of assets with beneficiary designations unless they are listed as the beneficiary, so it’s critical to review them regularly and make updates as necessary. By ensuring that your beneficiaries are up to date, you can help to avoid probate and ensure that your assets are distributed according to your wishes.
  2. Power of Attorney: These documents allow you to appoint trusted individuals to make financial and medical decisions for you in case you become incapacitated. Make sure that your power of attorney is not stale dated, which means that it has not expired or been revoked. If your power of attorney is a springing power, be sure to understand how it works, as it only comes into effect under certain circumstances, such as your incapacity.
  3. Power of Attorney “AND” “OR” Language: When creating your power of attorney, be mindful of the implications of using “and” versus “or.” If you appoint two or more agents using “and,” they will have to act together, which you may prefer but can make it difficult to carry out tasks if they live in different locations or they do not agree. However, if you use “or,” the agents can act independently, which can be helpful if you want to ensure that your affairs are taken care of efficiently.
  4. Living Will & Health Care Directives: These documents allow you to specify your medical treatment preferences and end-of-life care in case you are unable to communicate them yourself. Make sure that you communicate your wishes to your loved ones, and give them a copy of these documents.
  5. Advance Directive for Dementia: “Living Stage of Dementia” is an essential tool in managing dementia progression. It allows individuals, while they’re still cognitively capable, to express their wishes about their care, living arrangements, and medical decisions when they’re no longer able to do so due to advanced dementia. This document can provide peace of mind for both the person with dementia and their caregivers, as it offers clear instructions on how to proceed with their care.
  6. Keep Current with Evolving Legislation: If you have a trust, ensure that it is up to date. If you have not reviewed your trust in a while, consider having it reviewed by an attorney to make sure that it still aligns with your wishes and current laws. Also, if you have an IRA or other qualified asset that is being inherited by a trust, ensure that it is indeed your intention to have the trust inherit that asset. With the Secure Act, having a trust inherit that asset could be a disadvantage, so it’s important to review your options carefully.
  7. Location, Location, Location! Estate planning laws vary from state to state, so it is important to ensure your estate planning documents are reviewed and updated to meet the laws of the state where you are domiciled.
  8. Estate Taxes: Estate planning not only ensures the distribution of your assets according to your wishes but also entails adept navigation of federal and state estate taxes. For 2023, an individual can leave $11.7 million to heirs tax-free on the federal level, doubling to $23.4 million for married couples, with amounts indexed for inflation. However, estates exceeding this are taxed at a rate of up to 40%. State estate taxes, with exemption amounts and rates differing widely, can also significantly impact your estate. To mitigate these potential burdens, you might consider strategies such as lifetime gifting, establishing irrevocable trusts, or procuring life insurance to cover potential tax liabilities, guided by an experienced estate planning attorney.
  9. Spendthrift Provisions: If you are concerned about a beneficiary’s ability to manage their inheritance responsibly due to issues like debt, addiction, or financial irresponsibility, you may consider a spendthrift provision. This restricts a beneficiary’s access to a trust’s principal and allows a trustee to control how the trust’s funds are used.
  10. QTIP Trusts for Blended Families: In a second marriage, especially when there are children from previous marriages, a Qualified Terminable Interest Property (QTIP) Trust can ensure that both the current spouse and the children from a prior marriage are provided for. The surviving spouse receives a set income or a percentage from the trust during their lifetime, and the remaining assets go to the children from the previous marriage (or other designated beneficiaries) upon their death.
  11. Involvement of Trusted Professionals: Consider seeking the guidance of experienced professionals, including an estate planning attorney, financial advisor, and tax specialist. These professionals can provide valuable advice on the legal, financial, and tax implications of your decisions, and help design an effective estate plan. By involving them in your planning process, you can ensure your estate plan is comprehensive, legally sound, and optimizes tax efficiencies. This teamwork can be particularly important in complex situations, such as for business owners, those with substantial estates, or families with unique needs or dynamics.

Estate planning can be a complex process, but by following these best practices, you can help ensure that your wishes are carried out and your loved ones are taken care of. Remember to review and update your plan regularly and work with a trusted attorney to help ensure that your estate plan aligns with your wishes and current laws.


Babb Wealth Advisors, LLC does not provide legal, tax, or accounting advice. This article is for informational purposes only.