Estate planning: 3 key steps to consider

Think of putting your affairs in order as a way to feel more organized and in control of your finances now and, even more important, to leave a final gift to make things easier for your family at a time when they’ll need it most.

Here are 3 simple ways to set up and maintain an estate plan:

1. Start with a letter of last instruction

A letter of last instruction should give your loved ones detailed information on where they can find:

  • Wills and living wills.
  • Contact information for your executor, attorney, and financial advisor.
  • Trust documents.
  • Durable power of attorney forms.
  • Health care directives.
  • Financial statements.
  • Insurance policies, including long-term-care insurance.
  • Your driver’s license, birth certificate, and passport.
  • Tax records and information for preparing a final tax return.
  • Mortgage company information.
  • Real estate and car titles.
  • Credit cards.
  • Keys and passwords to access secure items including safe deposit boxes and password-protected devices.
  • Inventory and location of valuables (jewelry, cash, etc.).
  • Funeral preferences.
  • Relatives and friends to contact.
  • Personal notes to family members.

Tip: Consider putting together a binder that holds all of your important documents and letting family members know where to find it.

2. Make it legal with a will or living trust

You need to establish a binding legal document to ensure your assets will be distributed the way you’d like. Yet many people haven’t taken this step. According to a 2017 survey, only 42% of adults in the U.S. have a will or living trust. Here’s how these documents work:

Last will and testament: If you’re still young or in good health or you don’t have significant assets, a will is inexpensive to set up and easy to change.

A will instructs others how to distribute your assets after your death. It generally needs to go through your state’s probate process, which is the court-supervised process of distributing your assets.

Living trust: A living trust is appropriate if you have significant assets (at least $1 million) or a complicated financial situation. It gives you more control over how your assets are distributed.

The biggest downside to a living trust is the cost; it’s expensive to set up. But, in some cases, it can benefit your heirs by maximizing the assets they inherit.

Advantages of a living trust include:

  • Tax benefits. In certain cases, a living trust can lower overall estate taxes.
  • Avoiding probate. Using a living trust allows your trustee to carry out your wishes without going through a probate process. This can make the process go more smoothly and save money on legal fees.
  • Privacy. Living trusts don’t become public record, unlike wills.

A trust can be designed many ways. It’s a good idea to consult with a qualified estate planning attorney to help ensure that your trust is properly designed and that your goals are being accomplished.

Learn about Vanguard trust services

3. Keep it current

Many people take a set-it-and-forget-it approach to estate planning. But it’s important to update your will or living trust to reflect changes in your family or your assets.

Here are the top reasons to update your estate plan:

  • Relocation to a different state. State laws on estate plans vary. If you retire to a different state, it’s a good idea to check with a local attorney to make sure your will is still valid.
  • Changes to your family. If you have new grandchildren, you may want to make sure they’re accounted for in your will. Also, update your estate plan to account for deaths or divorces.
  • Significant changes in your assets. If your estate is larger or smaller than it was when you created your will or trust, make sure you’ve made the necessary adjustments.
  • Reaching age 70½. RMDs (required minimum distributions) on tax-deferred retirement accounts will affect your heirs too. Converting traditional retirement plan assets to a Roth IRA can reduce taxes for your beneficiaries.

Setting up an estate plan is tempting to put off. But doing it now instead of later can give you peace of mind. It’s just one more way of showing your family you’ve planned for your future and theirs.


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