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Estate Plan: Essential for Most People

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Most people assume that estate planning is only for the wealth. After all, there is the belief that estate plans are designed to help large estates avoid paying taxes when the owner dies. You should realize, though, that good estate planning can be helpful for anyone. When you have an estate plan, your wishes are made known, and you can structure your finances so that your desires are followed if you become incapacitated (but  still alive).

An estate plan has three main parts:

  1. Your wishes: This includes your will, health care proxy and other items that allow your wishes to be known. It can also include naming guardians for your minor children should something happen to you.
  2. Asset protection: These items consist of trust options to shelter some of your money, and ensure your assets are properly used. It can also mean getting the insurance you need to protect your family. Life insurance is especially important if you want your family cared for.
  3. Tax reduction: With proper estate planning, you can reduce the taxes your heirs have to deal with. Different vehicles can shelter your money, and it is also possible for you to plan to make gifts to individuals while you are alive. Under certain circumstances, these are tax free, and they reduce the size of your estate so it isn’t taxed later.

Why You Should Consider an Estate Plan

The biggest reason to create an estate plan is due to the fact that your state will decide what happens to your assets after your death if you have no legally binding document describing your wishes. The most common document to accomplish this is the will. Without a will — with an appropriately named executor — the state will distribute your assets and decides who will take care of your children.

Your will ensures that someone you trust will take care of distributing your assets as you see fit, and making sure your children are placed with suitable guardians. If you care what happens to your stuff after your death, estate planning is essential.

Another common tool in an estate plan is the living trust. In this revocable arrangement you give legal ownership of your assets to the trust. A trustee distributes the assets to your named beneficiaries, through the trust, after you pass on. The great thing about a trust is that it helps your heirs avoid probate, which can be costly, time consuming and frustrating.

Setting Up Your Estate Plan

You should realize, though, that these documents won’t take care of everything. You need to be aware of the complications that can arise when your spouse has a conflicting estate plan. Make sure that your plan is compatible with your spouse’s (you should have separate trusts and wills, just in case one dies before the other).

Another thing to remember to do is to review your retirement accounts, insurance policies, bank accounts, brokerage accounts and other accounts to make sure that beneficiaries are named. This way, your beneficiaries will get access to the accounts upon your death, without the need for probate.

While you can usually put together a basic will without the help of a professional, it might be worth it to hire an attorney knowledgeable in matters of estate law to help you with a trust, and to make sure that other aspects of estate planning are taken care of correctly. Make sure you understand what is happening, and that you review your estate plan regularly, just in case you need to make changes.

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11 Responses to “Estate Plan: Essential for Most People”

  1. DIY Investor says:

    Again, good advice. I see a lot of people with young children and no guardian named.
    Surprisingly, many times problems arise not because of the money but because of what financial planners call the “guns and jewelry” issue. Simply, Sarah doesn’t get her mother’s ear rings that she borrowed for her senior prom and Joey doesn’t get the shotgun his father let him use when they first went hunting. If nothing else, carefully specifying wishes and even talking them out out before death can go a long way for family harmony.

  2. Shirley says:

    My parents were very practical and very realistic. When my brother and I were in our early twenties (and were still positive that they would live forever) they asked each of us if there was anything special that they had that we would like to have passed on to us down the road. It wasn’t a macabre conversation at all, just a question.

    They put our names on the back of them. When they did pass on, we found that many things had names on them and they were dutifully delivered.

  3. freeby50 says:

    You definitely need a will in most cases.

    I question if everyone needs a trust. I think those are probably only really necessary for larger estates or if you have special things you want to do or if state probate costs are particularly high. Hiring an attorney to setup a trust to avoid hiring an attorney to handle probate isn’t necessarily a net gain.

  4. Randy says:

    One caveat for Employer-sponsored retirement plan accounts: If you are married, your spouse must opt-out as beneficiary. If you’ve been divorced, your former spouse may be entitled to a portion and may remain the beneficiary to a part of it. Things get more complicated if you get remarried.Its important to remember employer-sponsored plans when checking/updating beneficiary designations as part of the financial planning process. Beneficiary designations should be updated for all applicable investment vehicles and insurance contracts any time you experience a life change: marriage,divorce, birth, death, or trust creation/updating.

    Randy Schaller
    Smart401k Investment Adviser

  5. billsnider says:

    ne additional note. Most states have estate or death taxes. They can be significant in some cases. If you move to one of the non estate/death tax states, you can leave a fair amount to your children.

    Also think of it this way. Lets say you live in a tax state and your total estate (house, IRA, 401, cash, etc) amount to $2,000,000. Some states take 50% after the first $1,000,000. Instead of giving this money to them you can use it to buy a house “FREE” in another state and pocket the $500,000.

    Bill Snider

  6. MJB says:

    I agree with Freeby50. Trust setup and administration can be costly and time consuming. It is not always the best choice. And FWIW, my wills, trust, and estate instructor taught us the same thing. That also says nothing about the size of an estate that passes to direct heirs tax free.

    One of the biggest reasons why I think you need a good estate plan is to protect the relationships of your heirs. No matter how respectful, reasonable, and polite your heirs are, not leaving a will makes it more likely that Sarah and Joey fight and never speak again. They might not like your estate plan but then they can blame you (who is dead and gone) instead of the living.

  7. zapeta says:

    Thanks for the helpful information. I know that I need to get a will in place. I am getting married in July and my wife and I are planning on taking care of these things at that point.

  8. skylog says:

    this is something my father and i are currently discussing. it is not a topic i like to think about, but i realize it is something important to my father. having lost his father a few years ago, and having to deal with a total mess, to put it simply, i can see how important it is to him to make sure i do not have the same experience.

  9. Strebkr says:

    This is a very intimidating topic to most people. It doesn’t have to be complicated and it is a very valuable to the family.

  10. Time Again says:

    In the event of parents’ death, do retain the Social Security Card. WHY?
    In the event you need to replace your SS Card,
    you must provide the SS # of your Dad! Now, a problem in this household!!

    Note: Where siblings are involved, I recommend items similar be stored in Bank Safe Deposit Box with all siblings having access.


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