The end of the year will be here before we know it, but there is still time to get some major estate planning goals accomplished. Here are ten things to do before the end of the year.
Have an estate plan completed. Set the end of the year as your deadline to finally get this done. Figure out why you have been procrastinating and conquer your fears. If it is because you do not have an estate planning attorney, ask friends and acquaintances for referrals (or find an attorney here). If it is because you are not sure who you want to be the guardian for your minor children, who you want to be your executor or trustee, or how to divide your estate, your attorney can help you decide. (You can always change your mind later; do not let these decisions keep you from putting a plan in place now.) If money is an issue, start with what you can afford (a will, power of attorney, health care documents) and upgrade later when you can. Your attorney may also be willing to accept payments.
Review and update your existing estate plan. Personal and financial circumstances change throughout your lifetime, and your plan needs to change with them. Revisions should be made any time there are changes in your family (birth, death, marriage, divorce, remarriage), your finances, tax laws, or if a trustee or personal representative can no longer serve. Now is a perfect time to do this; if there are changes you want to share with family members, you can discuss it during the holidays.
Consider using your estate and gift tax exemption. As of 2020, every American can transfer up to $11.58 million free of federal gift, estate, and generation-skipping transfer tax. A married couple can transfer up to $23.16 million. If Congress does not change the current law, the federal estate tax exemption in 2026 will be $5 million (adjusted for inflation), $3.5 million, $1 million, or some other amount determined by Congress. You should discuss potential changes to the tax laws in the upcoming years with your estate planning attorney. If you are concerned that a reduction in the estate and gift tax will adversely affect you, consider using up your exemption by making gifts while the exemption remains high. You do not have to completely give away your assets; you can make the transfers in ways that will let you keep control and even keep the income your assets are generating. You also do not have to use the full $11.58 million exemption to benefit; even those safely below the $11.58 million amount should consider some planning to prevent future tax liability.
Make tax-free gifts. Under current federal law, you can give up to $15,000 to as many people as you wish each year. This is a great way to reduce the size of your estate (and potentially save estate taxes) over time. For example, if you give $15,000 per year to your two children and three grandchildren, you would remove $75,000 from your estate in just one year and $350,000 in five years. (You can double these amounts if you are married.) Charitable gifts are unlimited. So are gifts for tuition and medical expenses, if you give directly to the institution. If your assets are safely below the $11.58 million exemption, you may not need to make these tax-free gifts to avoid paying estate tax when you pass away. You need to determine if making these tax-free gifts is appropriate for you by discussing them with your estate planning attorney.
Secure or update health care documents. At a minimum, everyone over the age of eighteen needs (1) a durable power of attorney for health care, which gives another person legal authority to make health care decisions (including life and death decisions) for you if you are unable to make them for yourself; and (2) Health Insurance Portability and Accountability Act (HIPAA) authorizations, which give written consent for doctors to discuss your medical situation with others, including family members. In addition, a revocable living trust is preferable over a will in the case of incapacity because it can prevent the court from controlling your assets.
Review and update your guardian for minor children. The person you name as guardian for your children when they are young may not be the best choice as your children get older. Also, this person could change his or her mind, move away, or even become ill or die. Revisit your choice from time to time, and name more than one guardian in case your first choice cannot serve. Remember, if you have not named a guardian who is able and willing to serve and something happens to you, the court will decide who will raise your kids.
Review and update beneficiary designations. This is especially important if your beneficiary has died or if you are divorced. If your beneficiary is incapacitated or is a minor, setting up a trust for this person and naming the trust as beneficiary will prevent the court from taking control of the proceeds.
Review and update your insurance. Check the amount of your life insurance coverage and see if it meets your family’s current needs. Consider getting long-term care insurance to help pay for the costs of long-term care (and preserve your assets for your family) in the event you and your spouse should need it due to illness or injury.
Talk to your children about your estate plan. You do not have to show them bank and financial statements, but you can talk in general terms about what you are planning and why. The more they understand it, the more likely they are to readily accept it—and that will help to avoid discord after you are gone. You can also talk to them about your values and the opportunities that money can provide. Even better, show your values by doing—the holidays are an excellent time for families to do charitable work together.
Get basic documents for unmarried kids who are over eighteen. It is a mild shock to learn we cannot see our college kids’ grades without their permission, even though we pay the tuition. It can be much worse if they become ill. Unmarried adults (age eighteen and over) must have a durable power of attorney for health care and HIPAA authorization naming you to act on their behalf in a medical emergency. And, while you are at it, have your attorney prepare a simple will and durable power of attorney. Hopefully these will not be needed, but if an event does occur, you will be glad you have them.