When you are ready to create an estate plan, it needs to include all your assets—at least the items and property with considerable value. Your planning should include a careful evaluation of what your spouse and children will need in the event of your passing. The best estate plan will take several documents to cover various needs and provide protection for your assets against creditors and possible legal challenges.
Here is a look at the documents you should know about and why you need them.
Making Your Estate-Planning Documents
Before making the documents needed for your estate plan, you should get the advice of an estate-planning attorney. It is especially important if you have considerable assets. Something as simple as incorrect wording in your documents could prevent your intentions from being carried out.
Laws concerning estate planning are constantly changing, but a lawyer who often deals with it would know the latest changes. An estate lawyer would also know the laws in your state and can advise you of ways to reduce taxes and things to avoid in your estate plan.
Identify and List All Your Assets
Take some time and list all your assets. It should include bank accounts, stock, retirement accounts, cryptocurrency, property, vehicles, etc. Also, list all your debts to ensure they get paid if you should die.
Choose Your Beneficiaries
Choosing who to give your assets to may be difficult. In some states, the spouse of the deceased has a right to one-half of the estate—no matter what your documents say. All your documents need to list current beneficiaries and a contingent because a contradiction may nullify parts or all of your will and other documents. Wells Fargo advises not to name your estate as your beneficiary because it might enable creditors to go after life insurance proceeds and other accounts.
Review the beneficiaries on your documents every couple of years to ensure you do not need to update them. The birth of a grandchild, a marriage, death, divorce, drug or alcohol problems, gambling debt, or if you no longer own an asset are some reasons why updates are needed. Also, if you have accounts that name a previous spouse as the beneficiary, your present spouse may not receive anything.
Buy Life Insurance
Life insurance can cover shortages if your assets do not provide enough for your heirs. If you do not have any children or choose to leave all your assets to your spouse, you may not need as much coverage. A whole-life policy builds cash value that you can withdraw if needed before you die.
A life insurance policy can meet many needs if your spouse or family depends on two incomes. Young children in the home also need to be provided for, along with any special needs children.
The Internal Revenue Service (IRS) says that the proceeds from life insurance go straight to the named beneficiary, and no taxes are required. Because the proceeds are given quickly, they can help the family meet daily needs, pay bills and taxes, etc., while waiting for probate to be settled, which can often take eight months or longer.
Creating a Will
The last will and testament is the document that is the backbone of your estate plan. It will direct your intentions and distribution of your assets not in other estate planning tools. The document also directs the Executor and helps the court understand your original desires.
Take Taxes Into Account
Avoiding taxes is another must-have in your estate planning. If your assets go to probate court, your estate could have a huge loss because of taxes. Besides the federal estate tax, some states may also have an estate tax and an inheritance tax.
Related Stories
2/10/2024
1/10/2024
Preventing a large loss of your estate to taxes requires advance preparation, depending on the type of assets you own. Legal tools can reduce taxes on retirement plans, property, investments, and other accounts, but steps must be taken while you are still alive.
Why You May Need a Trust
A trust can be valuable if you want to ensure your beneficiaries receive their inheritance faster. They also can be used to hold assets until they reach legal age if they are still young. A living trust, also called a revocable trust, is one where you still retain control of the assets until you either transfer them to an irrevocable trust or die. A trust is only valuable if you put assets into it. NerdWallet mentions that a strong benefit of a trust is that the assets in it do not go through probate, which enables the transfer of the assets to remain secret.
Establishing Powers of Attorney
An estate plan also must appoint powers of attorney over your affairs if you become incapacitated. One or more individuals can be named, but they must be people you trust. An alternate must also be named. NerdWallet says it is best to create two documents: a financial power of attorney and a healthcare power of attorney. It may not be a good idea to give the same person control over both areas.
The financial power of attorney is appointed to handle your finances while incapacitated. They can direct certain assets, such as your business or make all your financial decisions. The healthcare power of attorney gives another person the power to make healthcare decisions for you while incapacitated. It includes treatment or medications you will or will not receive, as well as decisions about whether you can be intubated or resuscitated.
Consult an estate planner or financial advisor to ensure your estate plan will accomplish everything you want it to. They can show you many tools to protect all your assets and provide tips on reducing taxes.
The Epoch Times copyright © 2024. 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.
