Financial Education

Are You Hitting Your Estate Planning Milestones?

Reading time: 8 Minutes

By Ilana Polyak

February 13th, 2018

Planning your retirement and estate is not something you can knock off in an afternoon and never think about again. It's a lifelong journey, full of twists, detours and the occasional off-ramp. If you want to make sure you're heading in the right direction, and on track for a comfortable retirement and a well-planned estate, you need to make sure you're hitting a few important milestones along the way.

Tracking these milestones by age is a good way to estimate how ahead or behind you are of a well planned estate, but of course every person's journey through life will be different. A 30-year old who is married with two children has very different estate planning needs than a 30-year old who just finished a medical residency and hasn't yet found a life partner, for example. Follow these milestones as rules-of-thumb, not hard-and-fast rules—your own personal situation will influence your planning process.

Age 20 - Grow your Estate Early, and Adjust Your Investment Strategy Along the Way

For many, the first step of estate planning is to build the estate in the first place. To make the task of saving and investment easier, start as early as possible. The earlier your start, the more time compounding has to work its magic—and less money you need to save.

At age 30, you should have about a year's worth of salary squared away. At the very least, you should be contributing enough to get your employer's retirement match, if one is available.

Also, make sure you regularly revisit your investment strategy, to update and rebalance your ratio of risk versus growth potential. Research shows that asset allocation—the specific mix of stocks, bonds and other investment types—makes a bigger impact on your long-term investment success than investing acumen.

To quickly arrive at the percentage of stocks to own, one good rule of thumb is to take 125 and subtract your age. So, if you are 45, your stock allocation should be 80 percent. As you age, you should reduce your stock exposure, because while stocks have more upside potential than bonds, they have greater volatility. You have less time to make up for market downturns the closer you are to retirement. The recommended starting point used to be 100, but, given the greater longevity of current generations, many financial experts have upped it, to tilt your portfolio more heavily toward stocks.

You can also consider using target-date funds, offered by most 401(k) plans and brokerage accounts. These funds automatically match the level of risk and growth potential to your age and time horizon and come up with the best asset allocation for you.

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Age 25 - Designate a Power of Attorney

Many people think of serious illness as something that strikes later in life, but an accident or illness can arrive at any time, rendering you unable to express your wishes and requiring you to rely on family members to make medical decisions on your behalf, which may not necessarily be according to your wishes. That's why it's best to prepare for the unexpected while you are healthy and of sound mind, and can rely on your own decision-making.

An advanced healthcare directive designates a person to act on your behalf for healthcare decisions and spells out what type of care you want to receive if you are not able to express your wishes, such as whether you want life sustaining treatment if you are in a vegetative state.

For your finances, a durable power of attorney can appoint someone to manage your money on your behalf if you are unable. If you're married, you can designate your spouse. If not, carefully choose a trusted friend or family member.

Age 30 - Create a Revocable Trust and Draft a Will

There are many varieties of trusts that serve different purposes, including revocable trusts, irrevocable trusts, asset protection trusts, charitable trusts and special needs trusts. If your finances are complex, you may need more than one. But one of the primary kinds is a revocable trust—also referred to as a living trust—which allows you to control the transfer of your estate to your beneficiaries in the event of your death.

The most important life-event trigger for creating a revocable trust is generally the birth of your first child. You want to be able to provide for your children, and a revocable trust offers two benefits: One, it allows your heirs to avoid probate court. And two, it allows you to leave specific instructions to the appointed trustee about when your children can receive the money and when the trustee should withhold money—for example, if they have a gambling problem or otherwise exhibit poor financial decision making, are in a high-liability profession or are getting divorced.

These trusts are considered “living” because you create them while you are still alive and they are called “revocable” because you can make changes to them along the way. In addition to controlling distributions to be made to your beneficiaries, a revocable trust may be able to incorporate certain provisions in it (depending on your personal situation) that result in estate tax savings.

Creating a trust for your assets is an important first step, but a trust can't handle everything in your estate. You should also have a will in case you forget to put any of your assets in your trust. Your will directs that these forgotten assets be included with the rest of your trust assets. A will can also name guardians for your children in the event that you pass away while they are still minors. If you die without a will, or “intestate,” any property not in your trust will be distributed according to the succession laws of your state—that may not be what you want.

Setting up a trust and a will typically includes additional estate planning steps that should happen at the same time, including beneficiary designations and titling. An estate planning expert will walk you through these—tailoring each of them to your specific life circumstances.

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Age 45 - Review Your Beneficiaries

When was the last time you reviewed the beneficiaries of your 401(k), bank account, annuity and life insurance? If it was sometime before the advent of social media, you're overdue. You may have designated a beneficiary years ago and forgot to update them as your life circumstances changed.

What if an estranged relative is still listed as a beneficiary? Would you want that person to inherit your account upon your death, leaving out the people who are close to you now? Bear in mind, beneficiary designations supersede the wishes expressed in your trust.

Changing the beneficiary designation requires filling out a simple form and can often be done online.

Age 55 - Make a Succession Plan for Your Business

If you're a business owner, you know the hard work and sacrifice it takes to build a successful enterprise. Don't let all that hard work go to waste when you're ready to retire.

A succession plan is a must for several reasons. First, it ensures a smooth transition from one owner to another, with minimal disruption. Next, it frees up assets for your retirement. Finally, it can be the cornerstone of your estate plan, providing a legacy to the next generation.

To ensure the best possible outcome, work with a succession planning expert at least five years before you want to transition out of the business, and ideally even earlier than that. This person can help you identify a successor and facilitate the financing for new ownership. By starting early, you can spell out the terms of the transition in a way that allows you to have the level of involvement you want.

It also must be said that finding a buyer—especially the right buyer—for your business may be harder than you anticipate. It's much better to have time to shop it around than be forced into a fire-sale situation.

In addition, speak with your tax advisor who can help you to minimize taxes on the transfer of your business.

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Age 60 - Plan Your Retirement Income Withdrawal Strategy

If you thought saving for retirement was hard, wait till you have to figure out how to spend that money over the course of your retirement. Going into retirement, you will likely have different pools of retirement assets ranging from 401(k)s to IRAs to taxable investment accounts. Each one has different tax rules and withdrawal requirements. For example, traditional 401(k)s and IRAs are taxed on the full amount of the withdrawal as ordinary income. In taxable investment accounts, though, you are only taxed at the lower capital gains rate.

The order in which you make your withdrawals matters. Typically, financial advisors suggest tapping retirement accounts in this order to deplete accounts with the highest tax rates first:

  1. Traditional 401(k) and IRA accounts
  2. Taxable investment accounts
  3. Roth 401(k) and IRA accounts

Age 65 - Update Your Papers to Make Sure They're Organized and Accessible to the Right People

One of the greatest gifts you can give your family is to organize all your information clearly and accessibly. Dealing with the death of a loved one is difficult enough without the added stress of administrative hassles.

Make a list of all your accounts, advisors, accountants and lawyers, and how to reach them. Remember to include your online user names and passwords, too.

You should give this list to the person you are appointing to handle your estate's affairs or inform them where to find it. In addition to this list, take time to detail your final wishes. If you want a simple funeral, for example, make sure your family is aware of that; otherwise, they might feel compelled to spend extravagantly.

Now that you know the major milestones for estate planning, the next step is to meet with an estate planning professional who can advise you on your personal situation, and help you accomplish everything you need for a well planned estate.


Ilana Polyak writes about the ways we can all make better financial decisions. She covers topics ranging from investing, retirement, college funding, taxes, credit cards and insurance.

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