Estate Planning: Where to Begin?
It’s never too early to begin estate planning, and you never have too little money or property to ignore it. Planning what will happen after you have died is something that shouldn’t be avoided because you think you have plenty of time. Too many people have died with no plans, and their families have paid the financial consequences. There are steps you can take now to save your family the hassle of dealing with your estate on top of their grief.
You may think that you don’t have enough property, investments, or money to necessitate making an estate plan. That couldn’t be further from the truth. You likely have some ideas about how you want your money and property assigned after you die, whether it be to charities or specific individuals. You can’t depend on your state to determine who should receive your assets, and leaving heirs to determine how to divide assets may be difficult, even if you think they’ll be completely fair. A written plan will go much further in eliminating these and other problems.
Components of an Estate Plan
Once you understand the importance of making a plan detailing the distribution of your estate, you can start constructing that plan. There are several different components of an estate plan. Most people are familiar with a will, which assigns your assets to recipients you’ve designated. A trust is an alternative to a will, that allows for the swift transfer of assets while specifying how to distribute your estate. A power of attorney and a living will are essential documents that designate who will make financial and medical decisions for you if you’re unable to do so yourself.
Identify Your Assets
You should first list all the assets you have that will be distributed after you die. You may not have millions of dollars in a bank account, but you likely do have investments, retirement savings, property, and possibly a life insurance policy. A will is designed to let your family, the government, and any other beneficiaries know who you’ve designated to receive these monies and properties. If you still have minor children, a will names the guardians of those children should you and your spouse both die.
Estate Tax Planning
The federal government has laws governing the amount of money you can leave to your heirs without finding yourself subject to the estate tax. In many cases, a trust can help lower the taxes your heirs will have to pay after you have died. A trust is a document that spells out how property held for trust recipients is to be distributed. A trust also helps your heirs avoid probate, or the requirement that your will must go through court administration before settlement, adding to legal costs and extending settlement time. When you're making plans for your estate, it's important to consider how taxes will affect your estate and your heirs.
Review Your Plan Regularly
An important step many people overlook in estate planning is the necessity of regularly reviewing the property, instructions, beneficiaries and administrators that are part of the estate plan. Reviewing your estate plan annually is an excellent idea. If a beneficiary no longer meets the legal requirements mandated by your state or an administrator can no longer perform necessary duties, your heirs may pay the same price they would if you had died without a will.
Share Your Plan with Your Family
Finally, set a time to discuss your estate plan with your family. Your spouse, children, and any other beneficiaries should be notified of your plans. A written plan, including a copy of your will, any trusts or directives you’ve set up, and contact information for your retirement savings plan administrator, your life insurance company, and other assets will help your family during a time when they are likely preoccupied with other concerns. Talking with your family beforehand about the distribution of your property can help reduce or eliminate misunderstandings or mistaken beliefs after you’ve died.
You may think that your family doesn’t want to talk about your death. While it isn’t a pleasant topic, planning for the distribution of your estate now is one of the most loving things you can do for them. Set aside time now to plan for the future.