Estate Planning 101: Top 5 Steps to Start

Daniel Wotruba, Director of KerberRose Wealth Management

Many people believe estate planning is simply divvying up your assets after you die and is exclusive to the wealthy; however, it entails much more and applies to everyone. Proper estate planning ensures your family and beneficiaries are provided for and have access to your assets upon your temporary or permanent incapacity.

Estate plans are usually carried out during very difficult times. Losing a loved one causes very high stress levels and early, proper planning can alleviate this stress. However, not fully understanding your options in the planning process can put your most important decisions in the hands of someone else. If one dies without a will, the estate is said to be in intestacy. The law states if someone dies and a will is not found within 6 months, the intestate succession laws will decide which family members will inherit the estate and at which level.

Step 1: Preparing a Will/Trust

The main component and first step to estate planning is creating a will or trust. A will ensures your property is distributed as you wish, and a trust can help limit estate taxes and legal challenges. Wording of these documents is critical, as you want to stay consistent when bequeathing your assets to family and beneficiaries. It can become a problem if you name a family member as beneficiary of a certain asset (i.e. insurance policy) and then bequeath it to a different family member in your will. This could lead to a will contest and bitter feelings.

There might also be a need for a Schedule “A” when preparing an estate plan and utilizing a revocable trust. The Schedule “A” allows the person creating the will to list specific, tangible personal property to go to specific people. For example, if “Mom” wants certain jewelry to go to certain children, she would want to list it on the schedule “A.” Many people fail to utilize this estate planning tool, which invariably leads to disagreements and hurt feelings. The schedule “A” is not designed to cover every piece of tangible personal property, although those with high sentimental value should be noted.

Step 2: Selecting Beneficiaries

A will is a great place to start; however, it can be important for your assets to pass to your heirs without being dictated in the will. That is why beneficiaries are a vital part of your estate planning, as well as naming a contingent beneficiary. Beneficiaries should be over the age of majority and mentally competent. Contingent beneficiaries are entitled to the proceeds or assets if the primary beneficiary is deceased, unable to be located, or refuses the inheritance at the time the proceeds are paid.

If you do not name a beneficiary, or if the beneficiary dies or is unable to serve, a court will be left to decide what happens to your funds and assets. For many, this is not the best option since people who have no connection to the family may not fully understand your personal situation, beliefs, or intent; and therefore, could make decisions you might not fully agree with.

Contrary to popular belief, probate court can be a good thing. It is designed to be an orderly distribution of an estate. Still, the probate process tends to be very lengthy and can be quite expensive. Wisconsin probate attorneys can charge as much as 2 - 4% of all assets required to pass through the probate process. This is also a public process, with probate records available to the general public, for a fee; most people prefer higher privacy levels than the probate process may offer, so naming primary and contingent beneficiaries, whenever possible, is an important step in the estate planning process.

Furthermore, the beneficiaries chosen are often overlooked as an easy process. A recent KerberRose Wealth Management client requested an estate plan review and chose to leave the largest asset (401k) to her only son. Upon asking questions about her son, the client began to cry as she recalled he has struggled for years with substance abuse. KerberRose Wealth Management informed her that by naming him as primary beneficiary, he would have unsupervised access to the IRA dollars when she passed, which would not be wise, given her son’s situation.

“What can I do?” she asked. It was determined an IRA Trust may be the best option to protect the future welfare of her son. This is a great example as to why it is crucial to review your estate plan with a trusted advisor, who may better help you understand your options.

Step 3: Designating Power of Attorneys

Power of attorneys are another key part of estate planning. In the event you become physically unable, mentally incompetent, or deceased, a durable power of attorney (POA) has the power to transact real estate, enter financial transactions, and make other legal decisions. This type of POA is revocable on your behalf if you are deemed physically able or mentally competent, in the event you may no longer need a POA.

Another important power of attorney to consider is a healthcare power of attorney (HCPA). This person quite literally has your life in their hands for all important healthcare decisions on your behalf.

For both POAs and HCPAs, ensure you choose someone you trust, shares your views, and who would make decisions you would agree with. In most families, the spouse is named POA and/or HCPA; however, it may make more sense to name another family member, trusted friend, or financial advisor as your POA since they might be more financially savvy. You also want to make sure you name a back-up POA and HCPA in case the primary person dies or becomes unable to serve.

Step 4: Assigning Guardianship

When planning your estate do not make the mistake of over-looking guardianship designations. If you are a family with minor children, it is vital to choose their guardian -- a person or couple sharing similar views as you, are financially sound, and genuinely willing to raise your children. As with all designations, a backup should also be named, otherwise a court will be left to decide which family member cares for your children, regardless of your wishes. Worst case scenario, the children could even become wards of the state.

Step 5: Creating a Letter of Intent

In order to make sure your wishes are followed, a letter of intent is always a good idea. This simple document is given to your executor or beneficiary, outlining what you want done with particular assets after your death or incapacitation. Some letters of intent include funeral details and special requests. While in the eyes of the law, a letter of intent may not be valid, it still helps inform a judge of your intentions and may help with the distribution of your assets should your will be deemed invalid.

Estate planning is clearly not only for the rich and wealthy. Everyone can benefit from an estate plan and considering these steps is an excellent start. If properly prepared, these steps are designed to effectively carry out a person’s wishes if they die or become incapacitated, and ensures family is cared for.