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:
- 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.
- 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.
- 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.