Estate Planning: A Basic 7-Step Checklist - NerdWallet (2023)

What is estate planning?

Estate planning is the process of determining who will receive your wealth in the event of death or disability. One goal, often done with guidance from an attorney, is to ensure that heirs and beneficiaries receive assets in a manner that manages and minimizes inheritance taxes, gift taxes, and other tax implications.

Seven Steps to Basic Estate Planning

1. Inventory your belongings

You might think you don't have enough to justify estate planning. But when you start looking around you, you might be amazed at all the tangible and intangible assets you have.

Tangible assets of a property may include:

  • Houses, land or other real estate

  • Vehicles, including cars, motorcycles or boats

  • Collectibles, such as coins, artwork, antiques, or trading cards

  • Other personal property

The intangible assets of a property can include:

After inventorying your tangible and intangible assets, you need to estimate their value. For some features, external reviews like these can be helpful:

  • Recent reviews of your home (use ourHome Value Calculatorto find out how much it's worth)

  • Statements from your financial accounts

If you don't have an outside review, rate the items based on how you expect your heirs to rate them. This can help ensure that what you have is shared fairly among those you love.

2. Consider your family's needs

Once you have a sense of what's on your property, consider how you can protect the property and your family after you die.

  • Make sure you have adequate life insurance.— If your next question "How much life insurance do I need🇧🇷 It depends on factors like whether you're married and whether your current lifestyle calls for dual income. Life insurance can be even more important if you have a child with special needs or college tuition.

  • Appoint a guardian for your children- and a backup guard, just in case - if youwrite your will🇧🇷 This can help you avoid costly family court disputes that can erode the assets you own.

  • Document your wishes for the care of your children— Don't assume that certain family members will be there or that they will share your ideas and goals as parents. If the matter goes to court, don't assume a judge will grant your wishes.

3. Define your policies

A complete estate plan contains important legal requirements.

  • a promisemay be appropriate. Ordinaryrevocable living trustyou can allocate parts of your property to specific objects during their lifetime. If you become ill or unable to work, your chosen curator can take over. Upon your death, trust property passes to your designated beneficiariesstate, which is the court process that can distribute your property. There is also an option to configure airrevocable trust, which cannot be changed or revoked by the creator.

  • A health care plan, also known as a living will, states your desire for health care if you can no longer make these decisions yourself. You can also give a caregiver a power of attorney for your health care, giving that person authority to make decisions when you can't. These two documents are sometimes combined into one, called a living will.

  • A permanent financial power of attorneyallows someone else to handle your financial affairs when you are medically unable to do so. Your designated agent can act on your behalf in legal and financial situations when you are unable to do so as stated in the document. This includes paying your bills and taxes and accessing and managing your wealth.

  • a limited power of attorneyit might come in handy if you're worried about handing everything over to someone else. This legal document does exactly what its name suggests: it sets limits on the powers of its designated agent. For example, you can authorize the person to sign documents on your behalf when completing a home sale or selling a certain stock.

  • Be careful who you give power of attorney to.They can literally have your financial well-being - and even your life - in their hands. You can assign medical and financial representation to different individuals, with a backup for each in case your primary choice is not available when needed.

» Immerse yourself in the differences: Revocable trust vs. irrevocable trust

4. Check your beneficiaries

Your will and other documents may specify your wishes, but they may not be complete.

  • Check your retirement accounts and insurance. Retirement plans and insurance products often have beneficiary identifiers that you need to keep track of and update as needed. These beneficiary designations can replace what is written in a will.

  • Make sure the right people get your stuff. People sometimes forget the beneficiaries they named in policies or accounts created many years ago. For example, if your ex-spouse is still your life insurance beneficiary, your current spouse will get the bad news — and no policy payouts — after you leave.

  • Do not leave recipient sections blank. In that case, if an account goes through probate court, it can be distributed based on state rules about who gets to own the property.

  • Designate those entitled to conditions. These backup beneficiaries are crucial if your primary beneficiary dies before you and you forget to update your primary beneficiary designation.

5. Be aware of your state's tax laws

Estate planning is often a way to minimize estate and inheritance taxes. But most people do not pay these taxes.

  • At the federal level, only very large estates are subject to inheritance tax. For 2021, up to $11.07 million of a property is exempt from federal taxes. In 2022, up to $12.06 million is tax-free. What if you have a larger property that exceeds federal tax exemption limits? You might want to consider aGrantor entrusted to the Annuity Fund, or GRAT, a type of irrevocable trust that can help reduce the taxes your heirs must pay.

  • Some states have real estate taxes. You can charge inheritance tax on properties whose value is less than the federal tax exemption. 🇧🇷See which states have an estate tax here.)

  • Some states have real estate taxes. This means that people who inherit your money may have to pay taxes on it. 🇧🇷Learn more about inheritance tax here.)

6. Assess the value of professional help

Whether you should hire an attorney or an estate tax professional to prepare your estate plan generally depends on your situation.

  • If your estate is small and your desires are simple, an online or bundled will program may suffice for your needs. These programs usually take into accountIRSand country-specific requirements and guide you through the process of writing a will using an interview process about your life, finances and estate. If necessary, you can even update your own will.

  • If you have any concerns about the process, it may be worth consulting with an inheritance attorney and possibly a tax advisor. They can help you determine if you're on the right track for estate planning, especially if you live in a state with its own estate or inheritance taxes.

  • For large, complex estates - think special child care issues, business matters or non-family heirs - a probate attorney and/or tax professional can help deal with the sometimes complicated implications.

7. Schedule a reassessment

Life changes. This is how your estate plan should be.

  • Revise your estate plan as your circumstances change, for better or worse. This could include marriage or divorce, the birth of a child, the loss of a loved one, starting a new job, or being fired.

  • Review your estate plan regularly, even if your circumstances don't change. While your situation may be the same, the laws may have changed.

  • It will take some effort to revise your plan, but be brave. The need to revise means you've already avoided the biggest estate planning mistake: making no plans at all.


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Contributor Kay Bell wrote the original version of this article. It has since been updated.

This article is intended to provide background information and should not be considered legal advice.


What are the common estate planning mistakes? ›

Estate planning: 6 big mistakes you might be making
  • Financial procrastination.
  • Outdated wills and forms.
  • Uncoordinated beneficiaries.
  • Failure to title a trust.
  • Triggering the estate tax with life insurance.
  • Making children joint owners of your assets.

What is 5 or 5 rule in estate planning? ›

Key Takeaways. A 5 by 5 Power in Trust is a clause that lets the beneficiary make withdrawals from the trust on a yearly basis. The beneficiary can cash out $5,000 or 5% of the trust's fair market value each year, whichever is a higher amount.

What is an estate planning questionnaire? ›

ESTATE PLANNING QUESTIONNAIRE. This questionnaire is designed to help gather the information required to structure an estate plan that best accomplishes your goals.

What is the most important decision in estate planning? ›

A will or trust should be one of the main components of every estate plan, even if you don't have substantial assets. Wills ensure property is distributed according to an individual's wishes (if drafted according to state laws).

What should you avoid in estate planning? ›

The 13 Most Common Estate Planning Mistakes
  • Failing to plan.
  • Not discussing with family and friends.
  • Naming just one Beneficiary.
  • Forgetting about Power of Attorney or Healthcare Representatives.
  • Forgetting about final arrangements.
  • Forgetting about your digital assets.
  • Forgetting about charities that are important to you.

What should I avoid in a will? ›

Things you'll want to avoid putting in your will include:
  • Funeral Arrangements. ...
  • Organ Donation Requests. ...
  • Assets for Special Needs Children or Pets. ...
  • Reasons for Your Decisions. ...
  • Certain Property Types. ...
  • Business Interests. ...
  • Assets You Don't Want Entering Probate. ...
  • Accounts with Named Beneficiaries.
Nov 2, 2022

What are the 7 steps in the estate planning process? ›

Seven steps to basic estate planning
  • Create an inventory. ...
  • Account for your family's needs. ...
  • Establish your directives. ...
  • Review your beneficiaries. ...
  • Note your state's estate tax laws. ...
  • Weigh the value of professional help. ...
  • Plan to reassess.
Feb 13, 2023

What is the 5 year rule for trusts? ›

A Five-Year Trust, also known as a “Legacy Trust” or “Medicaid Asset Protection Trust,” can be established to protect assets from being spent down on long term care in a nursing home. The assets you place in the Legacy Trust will become exempt from the Medicaid spend down requirements after a 5 year look back period.

Can a beneficiary withdraw money from a trust? ›

If the estate is set up in a trust, the named beneficiaries will have access to the property once the decedent passes away. Instead of waiting for months with a long probate process, you can usually gain access to the decedent's assets in a trust within a short time.

What are the two key documents used to prepare an estate plan? ›

by Brette Sember, J.D. A comprehensive estate plan typically includes four estate planning documents. These documents include a financial power of attorney, an advance care directive, and a living trust or a last will.

What is the most important component of your estate plan? ›

Trusts and Wills

Regardless of whether you have a limited amount of money or a large fortune, wills and trusts are the most critical elements of your estate plan.

What are the tools in estate planning? ›

Wills, trusts, powers of attorney, living wills and life insurance can work together to help you plan your estate.

What are the three primary goals of estate planning? ›

Three primary goals to estate planning are: (1) Maintain control while living, (2) Distribute responsibly and (3) Minimize expenses. Three major estate planning obstacles to avoid are: Probate, Conservatorship and Estate Taxes.

At what age do most people do estate planning? ›

The best age to make an estate plan is eighteen. The second best age is however old you are right now. You might be surprised to hear that an eighteen year old should have an estate plan. After all, most eighteen year olds have few assets and a long life ahead of them.

What are the two most important purposes of estate planning? ›

There are generally two main reasons why people put together an estate plan to protect their beneficiaries: To protect minor beneficiaries, or to protect adult beneficiaries from bad decisions, outside influences, creditor problems, and divorcing spouses.

What assets are excluded from an estate? ›

Assets that won't attract estate duty
  • Retirement funds. ...
  • Living annuities. ...
  • Buy and sell assurance. ...
  • Key person assurance. ...
  • Domestic policy where your spouse is the named beneficiary.
Nov 4, 2021

What are the 5 components of estate planning? ›

What are the 5 Components of Estate Planning?
  • Will. For many people, the will may be the first thing you think about when putting together an estate plan. ...
  • Trust. As a lesser-known document, this provides the legal backbone for your will. ...
  • Power of Attorney. ...
  • Health Care Directives. ...
  • Beneficiary Designations.

What are the four common estate planning objectives? ›

Upon your death, the primary objectives are to wrap up your affairs, provide for the support of your spouse and children, avoid unnecessary probate expenses, minimize the costs of estate taxes, and to transfer your property to your heirs and legatees.

What are the planning mistakes? ›

In Summary. To avoid making these 5 all-too-common planning mistakes: Get really clear on your strategy before you dive into the tactics when planning. Plan your details "just in time" and avoid preplanning too much detail too far in advance. Get crystal clear on the 'what' and 'why' and remain flexible with the 'how'

What are the two primary goals of estate planning? ›

Estate planning has two general objectives: to ensure that the assets are transferred according to the owner's wishes and to minimize state and federal taxes.


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