CNBC: What you need to know when making a will and other plans before you die

“When you get your affairs in order, it’s a gift you give to your family,” said certified financial planner Lisa Kirchenbauer, founder and president of Omega Wealth Management in Arlington, Va.

Contemplating your own death may not be on your list of things you look forward to doing.

However, for your family or other loved ones who find themselves trying to work through their issues while dealing with the emotional consequences of your loss, it’s important to have a so-called estate plan, experts say. And this is the case whether you are rich or not.

“When you get your affairs in order, it’s a gift you give to your family,” said certified financial planner Lisa Kirchenbauer, founder and president of Omega Wealth Management in Arlington, Va.

Simply put, your estate plan explains who you want to make the decisions and who will inherit what you own. “Inheritance” or (estate) simply refers to possessions and other assets.

Experts say most estate plans don’t need to be complicated. But to make sure your wishes are carried out, they must be carried out correctly, which may be worth consulting with a local attorney who specializes in estate planning.

Here are five key things to know if you’re starting to think about how you would develop an estate plan.

1. A Will May Not Cover All Your Bases

A will is a basic part of an estate plan. It allows you to identify who you wish to receive certain property and allows you to appoint a guardian for dependent children. If you don’t have a valid will when you die, the courts can decide who gets what or who is appointed guardian.

However, some assets do pass through wills, including retirement accounts such as 401(k) plans and individual retirement accounts, as well as life insurance policies and annuities. This means that the beneficiaries listed on these accounts supersede all instructions in your will.

“If your ex-spouse is listed on the beneficiary designation, your ex-spouse will receive the money regardless of what their will says,” said CFP Stephen Maggard, consultant at Abacus Planning Group in Columbia, South Carolina. .

Keep in mind that many 401(k) plans require your current spouse to be the beneficiary, unless otherwise agreed by law.

Ordinary bank accounts may also have beneficiaries listed on a form payable on death, which your bank can provide. The same goes for brokerage accounts.

If no beneficiary is listed on these different accounts, or if the named person is already deceased (and no contingent beneficiary is listed), the assets automatically go to probate.

It is the process by which all your debts are paid off and any remaining assets subject to probate, including those passing through the will, are distributed to the heirs. This can take anywhere from several months to a year or more, depending on state laws and the complexity of your estate.

2. Carefully choose the executor of your will, other key roles

When you write a will, you name an executor to carry out your wishes and manage your estate. It can be a great job.

Things like settling or closing accounts, making sure your assets are going to the right beneficiaries, paying off any outstanding debts (i.e. taxes owed) and even selling your home could be some of the tasks the supervisor oversees. ‘executor.

This means that you need to make sure that the person you appoint is ready for the position and ready to accept it.

Additionally, an estate plan should include other end-of-life documents, including a living will. This describes the medical care you want and don’t want if you are unable to communicate those wishes for yourself.

You can also give powers of attorney to people you trust so that they can make decisions for you if you ever become incapacitated. Often, the person responsible for making decisions about your health care is different from the person you would appoint to manage your financial affairs.

Just be sure to name alternatives.

“It’s very important to have backups in all roles in the estate plan…in case someone can’t serve,” said CFP Jennifer Bush, financial planner at MainStreet Financial Planning in San Jose, Calif.

3. Some assets get a “base raise”

If you have assets like stocks, bonds or real estate (i.e. a house) and you plan to give them to your children or other heirs during your lifetime, it might be make more sense to wait.

When these assets are sold, any increase in the so-called cost basis (the value at the time the asset was purchased) and the sale price is subject to capital gains tax. However, upon your death, your heirs who inherit these assets get a “base increase”. And when the heir sells the asset, any gain (or loss) is based on the new cost basis.

On the other hand, if you were to gift valuable assets to heirs before your death, they would assume your original cost basis, which could lead to an outsized tax bill when the assets are sold.

“We often find ourselves recommending that clients give money to their adult children,” Maggard said.

4. You may want to consider setting up a trust

If you want your children to receive money, but don’t want to give a young adult, or someone prone to money mismanagement or other disturbing behavior, unlimited access to a sudden windfall, you may want to consider setting up a trust to be the beneficiary of a particular asset.

A trust holds assets in the name of its beneficiary or beneficiaries and is a legal entity dictated by the documents that create it.

If you choose this route, the assets are left with the trust rather than directly with your heirs. They can only receive money according to how (or when) you have stipulated it in the trust documents.

5. Review your estate plan

Whenever you have a major life change, such as the birth of a child or a divorce, it’s important to review your estate plan.

You will want to confirm that your named executor (or trustee, if you are creating a trust) is still an appropriate choice. Please also check all payees listed on your financial accounts to ensure no updates are required.

Also, if you’re moving to a new state, be sure to check if you need to update any part of your plan to comply with that state’s laws.

This article was originally published in English by Sarah O’Brien for our sister network CNBC.com. To learn more about CNBC, enter here.