You worked long and hard to build up your nest egg and plan for retirement. As you approach your golden years, you may want to consider making adjustments to your estate.

You may need to redefine or add beneficiaries, establish power of attorney, update your will or reduce your estate's tax burden.

Update Your Retirement Plan Beneficiaries

With proper planning, your retirement accounts should cover all of your retirement and end-of-life expenses. The remainder will either pass to your named beneficiaries or to the government if no beneficiaries are named.

When you first established your retirement accounts, you may have been asked to identify one or more beneficiaries. However, if it's been years since you first named the beneficiaries on your account, you may need to update each of your retirement accounts. For instance, if none of your beneficiaries are living, then your retirement benefits become part of your estate. A probate court will disburse the account funds, but this leaves quite a bit to chance.

Updating your beneficiary information also helps you avoid intestate succession rules. These laws allow the state to determine your beneficiaries if none are clearly identified on your accounts or in your will.

Here are some common types of retirement accounts that allow beneficiaries:

• 401(k)
• 403(b)
• IRA (various kinds)
• 457(b)
• Health savings accounts (HSAs)

You should also consider your life insurance policy as part of your estate planning adjustments. Upon your death, this policy pays out to your named beneficiaries. That's why it's important to keep this account updated, especially as you near retirement.

Establish Power of Attorney

Granting power of attorney allows someone else to legally act on your behalf. As you update your estate prior to retirement, it's important to ensure a trusted individual will make decisions or appear in legal proceedings for you, in case you become unable to perform these actions yourself.

Your agents will not have all-encompassing decision-making authority unless you want them to. This means you can create limits, such as only allowing an agent to make medical decisions. Most states will also allow you to make power of attorney temporary or permanent, depending on your needs.

It's important to establish the power of attorney before you need it. A proactive approach can help to avoid legal conflict and confusion.

Update Your Will (Or Create One)

One of the biggest estate-planning mistakes retirees make is failing to update their will. Although you can name beneficiaries with your account management agency, a well-designed will can help shore up loopholes. Importantly, the will can help direct portions of your estate that aren't covered under managed retirement accounts or life insurance policies, such as your home and possessions.

Note that your retirement account and life insurance policy supersedes your will. This means the named beneficiaries on these accounts will be the primary recipients, not those you name on your will. In fact, all of your beneficiary designations will take precedence over your will. To avoid confusion and headaches for your loved ones, make sure your will and your retirement accounts' beneficiary information match.

Reduce Your Estate's Tax Burden

Taxes are a fact of life, especially for those entering retirement. Unless you've poured all of your retirement earnings into an after-tax account, like a Roth IRA, you're going to be hit with taxes once you start withdrawing benefits from your accounts.

You can minimize the tax impact in retirement if you make a few adjustments to your estate. Some options include:

• Maximizing your lifetime gifts: You can give up to $15,000 per year to anyone without incurring a gift tax. You can use this method to reduce the taxable amount of your estate over time. In 2020, the lifetime gift max is $11,580,000.
• Establishing a grantor trust. This form of trust allows you to provide benefits to family members while paying only income tax, instead of more complicated trust taxes. You'll also maintain control of the trust.
• Creating a family limited partnership. A great option for family businesses, the family limited partnership allows you to reduce your estate tax burden and transfer your assets to your family without the risk of creditors attempting to take a chunk out of it.

The Bottom Line

Retirement can be an exciting time of life, so long as you shore up some potential pitfalls with your estate.

Update your beneficiary information to make sure the right people receive your benefits after you pass away. Designate who gets power of attorney, and at what level, to solidify your end-of-life decision-making. Update or create your will to determine how your remaining property is managed.

And finally, reduce your tax burden as much as possible to make sure your loved ones retain the most benefit from your lifetime of hard work.

Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.