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Be Prepared: 7 Estate Planning Tips
No financial plan is complete without an estate plan. Estate planning covers all aspects of your life, from creating your will to planning medical decisions. Due to the complex and emotional nature of estate planning, many people avoid creating or updating their estate plan. Though this is understandable, estate planning is an important part of your financial plan. More importantly, it gives you the peace of mind knowing your loved ones will be taken care of and your wishes followed. The following seven tips can help you address your needs when drawing up your estate plan.
1. Evaluate Your Priorities
First things first, consider your priorities. It may be succession planning for your small business, making sure your spouse can live out the remainder of their days comfortably, or preserving family wealth over generations. You may also have multiple priorities that you’ll need to balance. Taking stock of your priorities upfront can help simplify the process. As decisions arise, you can make decisions that are in line with your goals and priorities.
2. Create or Update Your Will
A will is not the sole piece of your estate plan, but it is one of the most important. If you don’t have a valid will, the laws of intestacy apply. This means your assets will go through probate and be distributed according to state legislation. This process eliminates your ability to control the distribution of your assets. Further, the process is more costly and time-consuming, which will require your loved ones to spend more time and money settling your estate.
Over time, your priorities and wishes are likely to evolve, and your will should evolve with them. Any major life changes, such as marriage, divorce, the birth of a child, the birth of a grandchild, etc. should result in an update to your will. It’s also wise to periodically review and update your will to reflect any changes to your assets.
3. Include a Living Will
Estate planning is about more than transferring assets to loved ones after you’re gone. It’s also about preparing for any unexpected events that may happen in your lifetime. A living will designates a health care/mental power of attorney. It also clarifies your wishes in the case of life support or other medical procedures.
4. Designate the Right People
Estate planning involves designating individuals for many different roles: power of attorney, executor, trustees, etc. These roles come with a lot of responsibility, so consider your designations carefully.
One of the most important roles is your power of attorney. This person has the power to handle personal matters, covering everything from opening your mail to filing your tax returns. The executor of your will also plays a large role in handling your estate. This person is responsible for “executing” the transfer of assets as specified in your will. If you choose to set up any trusts, you’ll also need to designate trustees for them. Finally, if you have minors, you’ll need to designate someone to care for them.
Ensure everyone you designate is someone you can rely on and consider appointing two people for every position. Ideally, at least one of these individuals will be younger than you and live nearby.
5. Transfer Assets
When it comes to transferring assets, you have many options. The key goals are avoiding probate and minimizing the tax burden on your estate. Trusts and joint ownership are two great options to consider.
Trusts
There are two main types of trusts: 1. testamentary trusts, which are established after your death, and 2. inter vivos trusts, which are established during your lifetime. The appropriate trust depends upon the specific goal of your trust. If your children are minors and don’t have trusts, your property will be held by the government until they reach the age of majority.
Joint Ownership
Joint ownership may be a more convenient way to pass assets, such as accounts or property, on to an inheritor, but it can come with some unexpected complications. Work with a professional to ensure there are no unintended tax or probate implications.
6. Assess Your Taxes
Proper estate planning can help minimize some of the tax burden. The more you can take advantage of tax strategies in your estate plan, the more you’ll be able to leave to your loved ones. Preparing now allows you to take full advantage of any and all appropriate tax-saving strategies.
The recent “Tax Cuts and Jobs Act” may have an effect on your estate plan. At the federal level, up to $11.18 million of an individual’s estate is exempt from federal taxation, and $23.35 million for couples. You may have to pay estate or inheritance taxes, depending on the state you live in. Review this list of states to see what level of assets are excluded from your estate tax: https://www.nerdwallet.com/blog/taxes/which-states-have-estate-inheritance-taxes/
7. Talk with Loved Ones
Finally, once you’ve created your estate plan, it’s a good idea to have a conversation with your loved ones. This should include everything from logistics, such as where you keep important documents, to the type of funeral you would like. Having these conversations ahead of time can help prepare your loved ones and provide you with peace of mind.
Creating an estate plan is about caring for your loved ones and making sure your assets are distributed correctly. Keeping the above tips in mind can help simplify the process. For further assistance, please contact our office.
Sources
https://www.nerdwallet.com/blog/investing/estate-planning-basics-7-step-checklist/
https://www.thesimpledollar.com/personal-finance-101-the-basics-of-estate-planning/
https://www.investopedia.com/articles/pf/07/estate_plan_checklist.asp
The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice.
You should discuss any tax or legal matters with the appropriate professional.
This material was prepared by The Oechsli Institute, an independent third party, for financial advisor use.
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