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Estate Planning Basics

Most people understand how important estate planning is but the process can seem overwhelming and people don’t always know where to start. Regardless of your net worth, you need to set in place a plan to help your heirs understand your final wishes to ensure your estate is distributed properly. In preparation of the meeting with your financial advisor, here are a few tips and considerations you should keep in mind.

Choose an Executor

After your passing, you’ll want to have someone in place who is in charge of executing your wishes. This person is (fittingly) named an executor.  

Many people choose a relative or close friend as the executor of their estate. In most cases, the job is fairly straightforward. Still, you should give special consideration to someone who is organization minded and capable of handling financial matters. Someone who is well respected by your heirs and a good communicator will also help make the process run smoothly.

Above all, an executor should be someone trustworthy, being that this person will have a legal responsibility to manage your money, pay your debts (including taxes) and distribute the assets to your beneficiaries as indicated in your will.

If you will have a large, complicated estate or you foresee a significant amount of court time for your executor, you might consider naming a bank, lawyer or other financial professional. While these individuals typically charge a fee, the fee would be paid by the estate. In some instances, singling out one child or sibling as executor could be misconstrued as favoritism by other family members, so naming an outside party may be a good alternative in this case.

Address Estate Taxes

Tax planning is a necessary part of your estate planning strategy. You should work with a tax professional who can help you navigate state inheritance laws and federal estate taxes. The 2017 Tax Cuts and Jobs Act raised the federal estate tax significantly, which made it easier for families to maintain their estate when transferring to loved ones. Estates with combined gross assets under $11,700,000 (for individuals) are not required to file an estate tax return.1   

Plan For Health Care

Healthcare documents spell out your health care wishes if you become unable to make medical decisions for yourself. They also authorize a specified person to make decisions on your behalf if that should ever prove necessary.

These documents may include:

  • Durable power of attorney agreement for healthcare
  • Living will
  • Power of attorney agreement

 Evaluate Your Life Insurance

When was the last time you assessed your life insurance coverage? Have you recently compared the life insurance benefit to your financial obligations? Several factors will affect the cost and availability of life insurance including age, health and the type and amount of insurance purchased. Keep that information in mind when considering if you should try to replace your policy.

Life insurance policies have mortality expenses and other charges. If a policy is surrendered prematurely, the policyholder may also be required to pay surrender charges and there may be income tax implications. You should do your best to determine your insurability before implementing any strategy involving life insurance. Keep in mind any guarantees associated with a policy are always dependent on the ability of the issuing insurance company to continue making claim payments.

Write It Down

A letter of intent is a non-legal document that outlines your wishes. A clear, well-written letter may save your heirs time, effort and expense as they work to administer your estate. It acts as a final message from the deceased and can include an array of information from providing organization and outlining last wishes, to detailing information and sending personal messages. You ought to consider including instructions regarding your funeral arrangements and other details that are important to you.

Gather & Organize Documents

After your passing, you’ll want to make it easy for your heirs and executor to obtain and access important documents. 

These documents may include:

  • Certificates for stocks, bonds and annuities
  • Deeds to any real estate
  • Information on debts: credit cards, mortgages and loans
  • Information on financial accounts and safe deposit boxes
  • Information on retirement plans
  • Life insurance policies
  • Trust documents
  • Will

Have The Talk

Do you have stepchildren and ex-spouses? Have you been caring for foster children? Have you been caring for a grandchild, niece, nephew or other extended family? With the help of a financial planner and an attorney, you can structure a will or trust that will account for everyone you wish to provide for. The more clear and specific you can be the better, as this will reduce the amount of confusion among your family. Otherwise, everyone who thinks they deserve something from your estate may seek to extract it in probate.

When creating a will or trust there are many important factors to consider. Don’t dive into the estate planning process alone, you should reach out to a seasoned financial professional and estate planning lawyer. They will help guide you through the process and address things you may haven’t even considered. It’s important to cover all the bases when working to plan for your passing.

  1. https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax