You can help your relatives immensely by setting up an estate plan now, regardless of who you are. Essentially, whatever you own makes up your estate. These assets could be:
Having a say in how your estate is distributed is essential to your estate planning. Although it may seem daunting, saving your loved ones thousands of dollars will likely be worth the effort now.
In short, you and your family can benefit from estate planning regardless of your net worth.
Despite this, 2 out of 3 Americans do not have any type of estate planning document, according to a survey conducted by Caring.com.
“Estate planning is one of the crucial elements of a comprehensive financial plan, but somehow is also the most overlooked component, with the majority of adults not having any form of estate planning document,” says Patrick Hicks, General Counsel and Head of Legal at Trust & Will. “Having an estate plan is a continuation of financial planning and essential to ensure that your efforts to provide for your loved ones last into the future and act as a foundation to build multigenerational wealth and leave a legacy.”
In essence, estate planning is deciding how you want to distribute your assets after you die—or become incapable of making financial decisions for yourself. If you have trouble putting together an estate plan, and have the funds, consult a financial adviser and a lawyer.
Again, whether you’re broke or not, an estate plan is essential. Even though estate planning may seem morbid, it has several advantages:
There are several elements to an estate plan, including:
There are some people who might benefit from a trust as well.
Your possessions might seem insufficient to justify estate planning, but you may be surprised at just how much you actually have. As such, keeping track of your tangible and intangible assets is easy with an inventory.
Estates may contain tangible assets such as:
A person’s estate may contain the following intangible assets:
If you have outstanding liabilities, you should also list them. These are any debts that have not yet been paid in full like mortgages, credit cards, or other debts. If you die, an executor of your estate can notify creditors more easily by keeping a written record of your outstanding debts.
Answer these questions about how to settle your affairs before meeting with an estate planning attorney:
Legal directives are an important part of an estate plan. These typically include:
Your assets are placed in a trust for your benefit (and that of your beneficiaries) and managed by a trustee. Your trustee can take over if you become incapacitated or ill. When you die, the trust assets are transferred to the beneficiaries of your choice, bypassing probate. Alternatively, you can create an irrevocable trust, which cannot be changed or revoked.
In the event that you become incapable of making medical decisions for yourself, it outlines your wishes for medical care. If you are incapable of making health care decisions, you can also give a trusted person medical power of attorney. Advance health care directives combine these two documents into one.
When you are medically incapable of managing your financial affairs, someone else can. It is your designated agent’s responsibility to act on your behalf in legal and financial situations when you are unable to do so. In addition to paying bills and taxes, they’ll also be able to access and manage your assets.
You may benefit from this if you feel uncomfortable about turning everything over to someone else. Your named representative’s powers are limited by this legal document. During the closing of a home sale or when selling a specific stock, you could grant the person authorized to sign the documents on your behalf.
Your financial well-being—or even your life—might be at their disposal. In case your primary choice is unavailable, you might want to assign medical and financial representation to different people.
Almost all states offer standardized forms for medical powers of attorney that can be filled out in the blanks. It is not uncommon for states to provide a form for financial power of attorney, as well as a living will or advanced directive.
Forms generally won’t cost you anything, but notarizing them will. There are different notary fees in different states, ranging from free to $25.
Although your will and other documents may outline your wishes, they may not cover everything.
You need to keep track of beneficiary designations on retirement plans and insurance products. Beneficiary designations usually take precedence over wills.
The names of beneficiaries on policies and accounts established many years ago are sometimes forgotten. A life insurance policy that has your ex-spouse as a beneficiary, for example, might not pay out to your current spouse after you die.
During probate, an account may be distributed based on the state’s rules for distributing assets.
Having backup beneficiaries is essential if you forget to update the primary beneficiary designation and your primary beneficiary dies before you do.
It is often possible to minimize estate and inheritance taxes through estate planning. However, most people will not pay these taxes.
Only estates exceeding a certain amount are subject to estate taxes at the federal level. It generally applies to assets valued over $12.06 million in 2022 or $12.92 million in 2023 and has a tax rate of 18–40 percent. What if your estate exceeds the federal limit? Your heirs may benefit from a grantor-retained annuity trust, also known as a GRAT, which is an irrevocable trust.
Additionally, estate taxes are imposed in some states. If an estate’s value is below the federal government’s exemption amount, then the state may levy an estate tax. There are also inheritance taxes in some states. As a result, those who inherit your money may have to pay taxes.
In general, your situation will determine whether you need to hire an attorney or estate tax professional to help you create your estate plan.
Keep your estate plan updated once it has been finalized. According to Bob Carlson, senior contributor to Forbes, paperwork should be reviewed every three to five years. Your estate needs to be reviewed and revised if you experience major life changes, such as:
In estate planning, you work with professional advisors who know your goals and concerns, your assets, and how your family works. It might involve lawyers, accountants, financial planners, life insurance advisors, bankers, brokers, and more.
Tax planning may or may not be involved with estate planning, which involves transferring assets at death. Wills are the most common documents associated with this process.
When someone dies, their estate is everything they own before they’re distributed by will, trust, or intestacy. An estate can have real property, like houses, as well as investment properties. It also includes personal property like bank accounts, stocks, jewelry, and cars.
An estate plan lets you decide who gets what from your estate, and how much. In addition, it prevents taxes from ruining the estate.
No. Wills aren’t required by law. However, most people should make a plan for how their finances and property will be divided after they die.
For starters, you can control how your assets are distributed when you die by making a will. In the event you pass away without a will, you won’t be able to choose what happens to your stuff. Your will lets you decide who gets what, or whether certain people aren’t allowed to get anything. This is called disinheriting an heir. In many cases, naming the person who will wind up your affairs makes all the difference in how smoothly things go. Knowing they’ve picked someone they trust to handle their final affairs gives people peace of mind when they make a will.
Also, in an unfortunate scenario where you pass away while your children are still minors, a will lets you plan for their care. Plus, a will can save your heirs the trouble of going through probate. You can also avoid estate taxes by making a will. Your beneficiaries and heirs won’t have to pay estate taxes on the amounts you left them.
Wills aren’t permanent, so you can change them anytime. In case you decide to divide your estate differently later, you can make any adjustments you need.
Without a will, your property passes according to state law, regardless of what you want. A person dying intestate means they die without a legal Will, and intestacy is what happens to their estate without one.
In most cases, the estate of a married person who dies with a spouse still alive goes to the spouse. If you don’t plan ahead, your surviving spouse can use your assets, savings, and retirement to support his or her new family.
A person’s spouse and children from a previous relationship are usually exceptions. A surviving spouse usually gets one-third of the estate if there’s no Will, and two-thirds goes to the children. Wills are needed if a person wants their assets disposed of differently than by statute. You can add a lot of stress and expense to an already emotional and difficult situation when you die without a will.
The good news? Wills don’t have to be complicated or expensive.
By John Rampton
The Epoch Times Copyright © 2022 The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.