Estate planning isn’t only for the wealthy. Your estate includes your possessions, and they can come in different sizes. That makes it more critical to plan for the worst after getting incapacitated or passing away.
What’s Estate Planning?
Estate planning is the legal process of assigning a person responsible for handling your duties and distributing your assets after your incapacitation or death. It has to focus on ensuring your beneficiaries receive their inheritance in a way that lowers income tax, gift tax, estate tax, and other deductions. In addition, it can aid in outlining a platform you can modify as your financial and personal situations change.
You’ll have to ask yourself how you want the estate planner to distribute your assets if you get incapacitated or die.
How One Should Manage It
Not drafting your estate plan will only cause emotional distress and confusion to your family. Your estate plan and last will are different documents. Drafting an estate plan will provide a strict guideline for your guardianship wishes, trusts, assets, and more. It’s more complex than the last will, so having one is worthwhile. Here are seven tips to help you complete the planning like a professional.
Find the Ideal Team for You
The ideal team to help you plan this document should include a conveyancing lawyer, estate planning attorney, accountant or tax professional, and financial advisor. Each professional has a role to play in this responsibility. Getting the right team will also ensure the courts will distribute your possessions evenly to the beneficiaries or organizations you included in the estate, with as few arguments as possible.
Guardianship for Your Kids
Your planner will also ask you to appoint a guardian who will care for your dependents, including a disabled person or minor you’re caring for. Be sure to inform your assigned guardian to get their consent. However, appointing a guardian doesn’t necessarily mean selecting the person handling the money allocated for your children’s care. Naming one can also be challenging, especially if you’ve chosen two people to be co-guardians.
It can get dirty if the couple files for divorce. Meet with your attorney to discuss how you can address these situations.
Plan for the Property Taxes
Your state might subject all your possessions to federal estate taxes. This means you’ll have to settle that in cash on or before nine months after your death. It might get challenging if half of your assets aren’t in cash. If that’s what you’re dealing with, you might have to sell your possessions, like the house you’ve appointed to a beneficiary. Don’t hesitate to ask accountants, financial advisors, and tax specialists which planning strategies might help you in these cases.
Prepare for Long-Term Care
Not preparing for long-term care will eat through what you might have initially set aside for your beneficiaries. This can especially happen if you or your partner requires expensive pills or treatments. Meeting with your financial advisor is an excellent way to plan for your long-term care needs and, at the same time, protect your possessions. You’ll need to ensure to weigh the options available and find the right strategy if your health deteriorates or changes.
List Down the Beneficiaries
Not listing down your beneficiaries or keeping the list updated is a huge mistake you’ll have to avoid. Most assets you have with named beneficiaries will go to those individuals, even if your estate plan doesn’t expressly state that. That includes insurance policies, IRA, 401(k), and transfer- and payable-on-death accounts. Keep your list aligned with your estate plan to minimize confusion and conflicts.
Plan for Your Digital Assets
Many people have important documents and treasured pictures in cloud storage or social media. While your service providers will not disclose your passwords, the law can’t help you in these situations. If you want to streamline your distribution, you’ll have to appoint a “digital beneficiary” in your estate plan. The court will grant access to this individual to all your digital information, like logins and passwords.
If you want to delete your accounts, you’ll have to ask your attorney to plan for that.
Try to Lower the Legalities
You shouldn’t only focus on the federal estate tax. Income regarding a decedent (IRD) might be more challenging to deal with. Suppose you unexpectedly passed away and have income with no deductions. In that case, your beneficiaries or estate will have to pay income taxes on that money. Examples can include sales commissions, retirement account payouts, or savings bond income—income intended for you when you’re alive. Talk to your tax professional to ensure you have a detailed estate plan.
Estate planning is one way to make your passing easier for your loved ones. This might seem like another obstacle you’ll have to face before your time comes, but its benefits will become a part of your legacy.