Estate planning is a process of creating legal documents that determine how an individual’s property and responsibilities are managed and distributed after death. It may include a will, setting up trusts, making charitable donations to limit taxes, and naming beneficiaries.
An estate plan can help prevent family disputes, make medical and financial decisions on your behalf if you become incapacitated, and more. It’s important to review your estate plan after life changes, even minor ones. Click Here to discuss your concerns and see how they can help you to make a plan that works for you.
Taking Inventory Of Your Assets
It’s common for people to think that estate planning is only for the ultra-wealthy, but the reality is that anyone who has assets should consider creating a plan. An estate plan is a set of instructions that tells family members and friends what to do with an individual’s property when they die or become incapacitated. It includes everything from a will to setting up trusts and charitable donations to limit taxes.
The first step in creating an estate plan is taking inventory of all your assets and belongings. It can be a tedious task, but it’s important to be thorough. This will help ensure that your beneficiaries receive all of the assets you intended for them and avoid any surprises or litigation.
Assets can include real estate, investments, life insurance, automobiles, personal possessions and even checking and savings accounts. It’s also a good idea to list any debt that you have, including mortgages and lines of credit. A complete inventory of your assets will help your estate planner make decisions about how to distribute your property and how best to protect it.
If you own a business, your estate planning attorney will need to know whether it is structured as a sole proprietorship, partnership, or limited liability company. This will influence how your business is transferred to a beneficiary. The same is true if you own a home jointly with someone else. The simplest way to transfer this type of property is by changing the ownership status to joint tenancy with rights of survivorship.
When determining how to divide your assets, it’s important to take into account any special needs that you or your family may have. This could include limiting certain assets to children with disabilities, providing for the care of pets, and making arrangements for heirs from other relationships.
Selecting Beneficiaries
After you’ve made a complete list of all of your assets, it’s time to choose beneficiaries. This is an important step because it simplifies the process of settling your estate after you’re gone and saves your heirs time, money, and stress.
Beneficiary designations can be found on many financial accounts, including life insurance policies, 401(k)s, 403(b)s, IRAs, 529 college savings plans, and even bank accounts. A good financial planner can help you to make a full list of all your beneficiaries and coordinate these with your overall estate plan. They can also help you to understand the legal and tax implications of the choices that you are making.
For example, if you have young children as beneficiaries, you may want to set up a trust that will manage their inheritance until they reach an age of responsibility, or you might prefer to appoint a guardian to care for them after your death. Beneficiary designations are not only about what you wish to leave to your loved ones; they can also help you reduce the amount of income tax that your heirs might have to pay after your death.
Several mistakes can be made when selecting or changing beneficiary designations. An experienced financial planner can help you avoid these mistakes by carefully reviewing your beneficiary designations and coordinating them with your overall estate plan. They can also assist you as you create new accounts or change your beneficiary designations in the future, to ensure that they remain in line with your goals and wishes.
Creating A Will
It’s important to create a will that details your wishes and assigns someone to oversee the execution of those wishes. The first step is to tally up all of your assets and their value, including non-liquid assets such as real estate. You also need to consider how your assets are titled—for example, accounts with designated beneficiaries may pass directly to that person upon your death and not be included in your will.
Once you have a list of your assets and their values, it’s time to choose beneficiaries. This isn’t the time to make general estimates; it’s important to think about each individual in your life, including your spouse, children, parents, siblings, and extended family members. This will help you decide if you want to divide your estate evenly or if any special circumstances require a more individualized plan (like leaving more to one child who did more of the work of caring for you in your later years).
You can do this yourself with the right tools and support, but some people choose to hire a financial or legal professional to guide them through the process. These professionals typically charge hourly rates and can be an excellent resource if you have a complex estate or any special needs that should be addressed in your plan.
Another option is an online tool like Trust & Will, which provides state-specific forms for individuals and couples to create their estate plans. The platform is easy to use and includes access to attorneys and other experts. You can even schedule a face-to-face meeting with an attorney through the platform. Regardless of how you complete your estate plan, make sure it is signed and notarized appropriately.
Creating A Trust
While a Will is a critical part of estate planning, you’ll need more than just a Will to provide for your family after your death. A Trust is another important piece of your overall estate plan that can help ensure that your wishes are carried out and that your loved ones have the resources they need.
A Trust can be used to hold and manage assets and property you wish to pass on to your heirs, such as cash, real estate, investments, or business interests. The trustees you select will handle the Trust’s assets according to your instructions and distribute them to your heirs according to your wishes. Unlike a Will, a Trust can remain private and avoid the public process of probate, which can be time-consuming and expensive. Trusts also offer certain tax benefits, such as generation-skipping tax exemptions.
Considering whether or not to create a Trust comes down to how much control you want over how your assets are disseminated and the value of your assets. Additionally, the costs associated with a trust can be significant, including fees for attorneys, title transfers, property registration, and filings, as well as compensation for the trustee.
A financial professional can help you understand your options and work with your estate planning attorney to ensure that your estate plan is complete and in line with your goals. It’s also important to talk to your loved ones about your plans, which can help you prevent misunderstandings and conflicts. A financial advisor can provide information and tools to help you have these conversations, as well as refer you to an estate planning attorney.
Having Honest Conversations
For many families, two subjects that are difficult to talk about are death and money. Even in the most open of families, these topics can cause conversation to stall and this lack of communication can have disastrous consequences. Having honest conversations about estate planning can help avoid costly errors and ensure that your wishes are carried out.
The first step in estate planning is to make a list of all your assets. This will include your personal property such as furniture, vehicles, and valuable collections; financial assets such as bank accounts and retirement accounts; and even digital assets such as login names and passwords. You may also want to add a list of liabilities, including mortgages and credit card debt. Once you have a clear picture of your assets, it is important to understand who owns what and how this ownership will impact your estate plan.
One of the most common mistakes people make is holding assets that are titled differently from how they are designed in their estate plan, and this can have an impact on tax efficiency and how assets pass to loved ones. In addition, people often forget to update their wills and trusts after significant life changes, which can result in outdated legal documents.
It is also important to choose fiduciaries wisely. This includes both your executor and those who are given medical power of attorney. It is important to choose people who are willing, capable, and qualified to carry out your instructions. It is also important to remember that tax laws are not set in stone and it is a good idea to review your estate plan every two to three years or after significant life changes.
