Estate planning...is it on your to-do list?
Are you ready to join the 40% of Americans who already have an estate plan?
Though many of us realize that estate planning is important, a lot of us never get around to doing it.
If you want to prepare for your future and provide for your family, you need to get your affairs in order via an estate plan.
Before you jump in head first though, there are some estate planning tips you should know. Let's take a look at some of the more important ones.
What is Estate Planning?
The estate planning definition is fairly simple and it is more than having a will. It is the transference of a person's wealth and assets after the person passes. It also includes provisions in which a family member is given power of attorney should you become incapacitated or unable to control your assets and estate.
Assets include life insurance, personal belongings, pension, property, and vehicles. Debt is also included in a person's estate.
Once an estate plan is made, the owner of the estate signs it and notarizes it in order for it to hold up in a legal proceeding.
Estate Planning Tips
Now that you know what an estate plan is, it's time to get started with yours. Here are the tips that will help you create an estate planning checklist.
1. Choose a Qualified Estate Planner or Team
Estate planning is not just worrying about who gets what when you die. It is also taking your assets that you have now and helping them grow into something to leave behind.
You'll want to meet with an attorney who deals specifically with estate planning, a financial advisor and a tax professional. Each one can help you find the best way to handle the specifics of your estate.
Attorney - Knows federal and state laws regarding the setting up of trusts and wills.
Financial Advisor-Will help you with investing and planning for your retirement years.
Tax Professional-Knows tax laws and can help minimize the income taxes that your beneficiary will be required to pay on the inheritance.
2. Designate Who Gets What
Do you have expensive jewelry or a sports car? To whom would you want those to go in the event of your death? This is where a will comes in.
Without a will, your assets may end up in probate or go to whomever the law says they will go. In most cases, it is an immediate family member.
If you are married, this means your spouse. If not, your assets would go to your parents or children if you have them.
3. Add a Life Insurance Policy to Cover Taxes
If your beneficiary is going to be expected to pay a large sum of income or estate tax, add a life insurance policy that will cover these taxes.
Life insurance proceeds are tax-free, believe it or not. Say you know that your spouse will owe $100,000 in estate taxes, purchase a life insurance policy that will pay $100,000 upon your death and your spouse can use that money to pay the IRS.
4. Specify How You Want Money to be Spent
If you have a child who you know will blow all of his inheritance in six months, it is a good idea to specify how you want the money spent.
If you'd like the money to be used to pay for college, hold it in trust until that time. If you would like to provide for specific needs of each individual, spell that out as well.
At the very least, leave a letter of intent to the executor of your will or beneficiary. In this letter, you may list what to do with each of your assets. You may also include funeral arrangements in this document.
5. Designate Guardians for Young Children
If you have or are planning to have children, it is important to choose a guardian or guardians for them.
Choosing the right person is important because you want your children to have a stable, financially sound person raising them if you should pass while they are young.
It is also advised that you choose a backup guardian as well.
Talk it over with whomever you choose and make sure you are all on the same page with regards to your children.
Without this designation, your children could end up with family members that you would not want. In the worst case, they could end up wards of the state.
6. Avoid Estate and Income Taxes
If you don't want the majority of your estate to go to taxes, do what you can to minimize income and estate taxes.
One idea is to gift money to your beneficiaries while you are still living. You can give up to $13,000 of nontaxable money to each individual. There is an added bonus of seeing your loved ones enjoy the money while you're alive.
Another strategy is to leave taxable income to a charity of your choice and leave the nontaxable assets like life insurance to your beneficiaries.
7. Power of Attorney
A power of attorney is important in case you are unable to make decisions regarding your financial or health matters.
A power of attorney is a document that gives a person or sometimes an organization the legal power to take care of your affairs and act on your behalf should you become incapacitated.
There are different types, such as the healthcare power of attorney and durable power of attorney. Speak to an estate planner regarding which type you will need.
Is it Time to Get Your Affairs in Order?
Now that you've learned some estate planning tips, do you feel ready to take on the job of planning for your estate? It will give you and your loved ones peace of mind. Reach out to us with any questions you may have. With over 30 years of experience, we're here to help.