4 Keys to a Successful Estate Plan

Explore wealth transfer options and get help with tricky situations.

Key takeaways

Creating an estate plan requires you to make some critical decisions around who will carry out your wishes and to whom your assets should pass.
Depending on your family's circumstances, you may want to explore options to transfer some of your wealth during your lifetime.
An attorney can be an important partner in helping you evaluate wealth transfer options that best suit your values and family's unique situation.

What is estate planning?

An estate plan is a set of decisions and legal documents that serve to help manage and distribute your assets after incapacitation or death. As part of the estate planning process, you’ll likely consider when and how your wealth would transfer to heirs, and strategies to minimize taxes.

Estate planning can be complicated by family dynamics, such as siblings with different needs or blended families. You may also have to consider how to divide assets such as a vacation home, sentimental heirlooms, or a family business. A financial professional or attorney can be a critical partner in navigating these and other tricky scenarios. They can be a partner in figuring out what’s most important to you, guiding you through the process, and planning for contingencies.

Below are 4 steps you may want to consider as you develop a comprehensive estate plan that suits your unique family situation.

Decide who will carry out your wishes

One of the hardest parts of estate planning is facing your own mortality. That also means considering who you might entrust with the critical tasks of managing your affairs after you’re gone—or in the event you become incapacitated. Some key steps include:

Creating a power of attorney and health care proxy. The power of attorney (POA) document grants someone the authority to make financial decisions on your behalf; your health care proxy appoints someone to oversee medical decisions. Married couples often name each other for these positions, but you may want to choose a backup agent as well in case that person is not able to serve. You’ll also need a living will, which spells out your wishes regarding end-of-life and other medical decisions.
Choosing an executor of your will, or the trustee of a living trust. Assets that pass through a will must go through a court process known as probate, which is administered by an executor. The executor role can be demanding, so it’s important to carefully consider the choice. Another way to distribute assets is through a revocable, or living, trust. In states known for a lengthy probate process, living trusts tend to be popular. They can serve a similar asset-distribution function as a will, but do not go through the probate process.

Explore wealth transfer options

Many investors don’t realize that assets in many types of accounts, including retirement accounts such as IRAs, 401(k) plan accounts, Roth IRAs, and savings and investment accounts, will pass to beneficiaries named on those accounts—and those designations supersede any terms of your will. Other ways assets may pass at death are by joint ownership (often with a spouse) and through a trust.

If it makes sense for your family’s circumstances, you also may want to consider passing assets during your lifetime, which can potentially reduce your taxable estate and allow your heirs to enjoy the benefits of your gifts sooner. Here are some options to consider.

Direct gifting: In 2024, you may gift up to $18,000 each year to another individual without using part of your lifetime federal gift tax exclusion ($13.61 million per person). A married couple with 2 children and 4 grandchildren, for example, could give $36,000 to each of their children and grandchildren each year for a total of $216,000, without reducing their lifetime exemption.
Funding a 529 plan: 529 college savings plans have a unique feature known as "accelerated gifting,"1 that allows contributions made in a single year to be spread out over 5 years for gift tax purposes.
Opening a donor-advised fund (DAF): Funding this flexible, tax-efficient, charitable account allows you to receive an immediate tax-deductible donation and then recommend grants to eligible charities over time. You can also name heirs as successors to the DAF, allowing them to continue your philanthropic legacy.

Consider a trust

Trusts can be beneficial for many reasons, including protection of assets, privacy, and additional options for philanthropy. There’s a common misperception that all trusts reduce tax liability. There are many other reasons why a trust can make sense. But in cases where clients are looking to reduce estate tax liability, a trust can be a powerful option.

For clients looking to shift growth assets out of their estate for tax purposes, options may include a grantor retained annuity trust (GRAT), where the grantor receives predetermined payments from the trust over a set number of years leaving excess assets to heirs while minimizing estate or gift tax liability, or an irrevocable life insurance trust (ILIT), which can potentially help heirs with costs and estate taxes related to settling the estate. For married couples, a spousal lifetime access trust (SLAT) can help transfer wealth minimizing estate or gift tax liability to future generations while allowing a still living spouse access to those assets if needed.

It's also important to keep in mind that current federal estate tax exclusions are expected to sunset at the end of 2025 and decline to approximately half the current amount, adjusted for inflation. However, any transfers made before that time will still stand, penalty-free. It’s essentially a use it or lose it arrangement.

Cover for special situations

Families with special needs children may have situations that merit additional consideration of trusts. For example, assets left directly to a special needs child could potentially impact their continued qualification for public assistance programs. Instead, clients should consider leaving assets to a special needs trust which can raise the disabled child’s standard of living without jeopardizing those need-based government benefits.