5 wise estate-planning steps

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When actor Mickey Rooney died in 2014, he didn’t have much money to divide. Instead, his family fought over where he would be buried — in the family plot or in Hollywood. There was no formal burial agreement in place, setting off the feud between two factions of his family.

You don’t have to be famous to inadvertently facilitate this kind of ugly — and costly — argument among family members after you die, says Stephanie Zaffos, an attorney and director of trust and estate planning for Convergent Wealth Advisors in Los Angeles. The best way to avoid it is to have a clear and comprehensive estate plan that leaves little room for dispute. “A little planning can go a long way,” Zaffos says, “making the process simple, increasing wealth through tax savings and enhancing peace of mind.”

Zaffos offers these five steps that she believe everyone should take, whether they have a big estate or a small one:

  • Identify your objectives. Do you want to leave money to your children, or would you rather leave it to your grandchildren, great-grandchildren or the charity that helped you out when you were ill?
  • Inventory your assets. “A lot of people have more than they realize,” Zaffos says. Consider stocks, bonds, business interests, life insurance, real estate and personal possessions such as jewelry and collectibles.
  • Consider your financial situation. Don’t let your retirement nest egg burn a hole in your pocket. Create a reasonable budget so you have enough money to cover your own needs no matter how long you live. Zaffos recommends that people turn to an accountant or a fee-only financial planner for help with the process of figuring out how much you might need over the course of your life. “This person can help you figure out a cash-flow plan for the next 10, 20 or 30 years, so you know how much you can reasonably spend and still have money left to pass down.”
  • Use tools that avoid probate. Probate is the legal process that includes proving in court that a deceased person left a valid will, that his property is identified and correctly appraised and that all debts and taxes are paid. It can be expensive and time consuming. Claims by creditors can really complicate the process, Zaffos says. Life insurance proceeds, financial accounts with beneficiary designations, trusts and payable-on-death accounts all avoid the probate process and preserve your estate.
  • Make smart and flexible choices. A well-crafted plan can ensure that yet-unborn children and grandchildren get their shares. It also can protect your heirs from losing what you leave them to debt collectors, angry divorcing spouses or their own extravagance.

“Estate plans aren’t just for the wealthy,” Zaffos says. “Everybody needs to plan for what will happen when they pass away.”

Updating an estate plan is important. Avoid making these estate planning mistakes.