Estate planning is the process of arranging who will receive your assets when you die. One goal of estate planning is to make sure your wealth and other assets go to those you intend (and not to others), with a particular emphasis on minimizing taxes so that your beneficiaries can keep more of your wealth.
But good estate planning also can reduce family strife, and provide clear end-of-life directives should an individual become incapacitated before ultimately passing away. The key tools for estate planning include the following as also mentioned above:
The will is a legal document, usually drafted by an attorney, which specifies how, when, and to whom your assets will be distributed following your death. Your will does not have to be complicated, but it should take into consideration several items. It should:
In order to accomplish specific or more complex financial goals, you may also need to utilize a trust. A trust is an arrangement to manage distribution of an asset, whether it is a property or cash.
For estate planning purposes, the asset can be transferred to a trust, which then “owns” the property, for the benefit of or eventual distribution to a beneficiary. You can establish and transfer assets to a trust during your lifetime, or you can do so through your will (called a testamentary trust).
Through the use of various trusts, you can:
There are two main types of powers of attorney:
A living will, sometimes called an advanced directive, indicates your desired treatment if incapacitated. It will also guide your family and health care providers in fulfilling your wishes.
Life insurance accomplishes what no other planning tool can. It provides an instant source of income tax-free cash. Your family members can use this cash to maintain their lifestyle, pay taxes (without liquidating your assets) and carry out your estate distribution wishes.
Whenever you open a financial account, typically a bank, brokerage or insurance account, you’ll be asked to provide a beneficiary for the account. The beneficiary is first in line to receive any funds from the account on your death.
You may divide your assets among multiple beneficiaries, if you wish, and name contingent beneficiaries in case the primary beneficiaries are not alive. Naming a beneficiary designation typically supersedes any other declaration in your estate.
That’s why experts urgently recommend you to name your beneficiaries. If you die without a will, accounts with beneficiaries named may at least still go to your heirs. Many retirement accounts have named beneficiaries.
Everyone needs some degree of estate planning. Estate plans need to be tailored to the needs of the individual. A will or trust should be one of the main components of every estate plan, even if you don’t have substantial assets.
Wills ensure property is distributed according to an individual’s wishes (if drafted according to state laws). Some trusts help limit estate taxes or legal challenges.
A will or trust should be written in a manner that is consistent with the way you’ve bequeathed the assets that pass outside of the will. Enlist a professional in estate planning or succession expert lawyer to draft the will so as to best avoid legal battles and contesting or invalidation/revokation.