Everyone needs estate planning—and this checklist makes it easy

An estate plan is just a fancy-sounding term for writing down what should happen with your money and assets, including your retirement savings, in the event of your death. If you don’t have a plan, you could leave your loved ones with some difficult and expensive decisions. Here’s a review of some of the thinking and documents that go into a basic estate plan—and tips on how to approach getting them done.

The fundamentals of estate planning

This checklist—while not exhaustive—will get you on the right track to protecting the financial and legal interests of your survivors. Although you may be able to take care of some of these things yourself, you may want to seek help from a lawyer, an accountant, or another skilled financial professional.

A living will and healthcare proxy—A living will (sometimes called an advanced directive) spells out your wishes for end-of-life care. This can become quite important if you’re severely injured or incapacitated and someone else needs to make decisions for you regarding life support. Your proxy is the person you appoint to make medical decisions, including those described in your living will, when you can’t.

A plan for passing along your retirement savings—If you participate in a 401(k), another type of workplace retirement plan, or an IRA, then you should’ve listed your beneficiaries. Of course, it’s important to keep this information up to date. But the reality is, income and estate taxes can sometimes make inheriting retirement savings more complicated and costly than you might expect. To help prevent trouble, it may be worth discussing your wishes with a qualified tax professional and your retirement account beneficiaries about the best way to take distributions from your accounts based on their situation.  

A will—With your will, you’ll specify who will receive which assets or possessions when you pass away. While some people use a lawyer to create a will, it’s unnecessary; you can do it yourself using websites that are created for this purpose. Why bother? Because if you don’t, government agencies and the courts will decide who gets your possessions—and they may not make the same choices you would. And if there’s a disagreement about the decisions, it could be costly.

Power of attorney—An individual with power of attorney can make financial and legal decisions (and sign documents) on your behalf, should you be unable to do so. Their responsibility can include signing legal documents and dealing with your financial and legal affairs. Despite the title, the power of attorney doesn’t have to be a lawyer; it can be a trusted and responsible relative or friend.

Guardianship—If you have children, your estate plan should include directions for who will look after them in the event you and your partner pass away.

Life insurance—If you have family members who depend on you financially, then it’s critical to have life insurance. In the event of your death, your policy can help ensure your dependents will still be able to meet their financial obligations and pursue their plans for the future (including college or retirement). You might also want to consider disability insurance, which can protect your family’s finances, should you be forced out of work by illness or injury.

A clear map to your finances—Many people use estate planning as the perfect excuse to get their finances in order. If you haven’t done so already, itemize all your accounts, including numbers and locations. Print a copy of your list and keep it with your will, insurance policies, healthcare directives, and other important documents for quick reference. And for the sake of security, consider keeping copies at your lawyer’s office, in a safe deposit box, and in another secure location inside your home.

Taking these important steps will leave you better prepared than most Americans. Just over half of those over age 55 have a will in place. Even fewer have prepared an advance healthcare directive or arranged for power of attorney.

Percentage of Americans age 55 and older who’ve set up these essential estate planning tools

Bar chart shows the number of respondents who've completed each essential estate planning step. Those with a will, 55%. Those with an advance healthcare directive or proxy, 41%. Those with a durable power of attorney, 33%. And those with all three essential tools, 18%.

Source: “Leaving a legacy: A lasting gift to young ones,” Merrill Lynch Wealth Management,
October 2020.

The most important piece of estate guidance is to get started today

As they say, there will never be a better time to plan for the future security of your loved ones. Whether you hire a professional or you handle the process and documentation yourself, creating a basic estate plan will help ensure that your finances are handled according to your wishes—and that your money ends up in the right hands.

At a time when many Americans are feeling financially stressed and anxious about the future, thinking of others and taking action can be very healthy things to do.

The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made herein.

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