A Beginner’s Guide to Estate Planning
You may have been told in the past that estate planning is exclusive to those who are wealthy, those with opulent assets to pass on to their loved ones after they pass away. However, this is not the case—estate planning is a worthwhile process that’s accessible to all.
So, What Is Estate Planning?
When a life comes to an end, the last thing a grieving loved one needs is the stressful task of guessing where you wanted your assets and possessions to be distributed and how to handle your responsibilities. The purpose of estate planning is to resolve that potential guess-work by planning ahead sooner than later.
A crucial element of estate planning is to make arrangements for your beneficiaries to easily obtain your assets without falling into the predicament of handling any excessive taxes, such as those relating to estate, gift, and income taxes.
No matter where you are in the estate planning process, even if you’re a beginner, you should know that your plan is flexible—you can make changes to your estate plan that evolves with you through changes in your personal and financial circumstances.
We are here to walk you through the process of beginning your estate planning journey, but to start, you must consider how you want your assets to be allocated in your absence.
How Do I Start My Estate Planning?
Estate planning is not a one-size-fits-all process by any means—your plan is not going to look exactly the same as someone else’s—but these five steps you can take to get a great start aren’t as complicated as you might think!
#1: Take Inventory of What You Own
When you begin to take record of your possessions for your estate plan, remember to keep track of which things are tangible assets and which are intangible. Tangible assets are more personal, such as your home, car, and collectibles—physical possessions. Intangible assets tend to be related to what you own “on paper,” such as your checking and savings accounts, certificates ofdeposit, stocks/bonds/mutual funds, insurance policies, retirement plans, ownership of businesses, and other documented financial activity. When you’ve itemized your assets, you should go through what you’ve recorded to assign value to each. Referencing recent appraisals of your home and statements from your accounts can help you to do so. If an asset of yours doesn’t have an outside valuation, you can use your discretion to set its value yourself according to how you best see fit for proper distribution among your heirs.
#2: Keep Your Family’s Needs In Mind
You want the best for your family, and you want to make sure your family is secure even when you no longer have the ability to be there for them. To ensure this, you must set up protection measures for the best interests of your loved ones.
Make a record of what you want for your children: it’s hard to think about in advance, but who would you want to take care of your kids if you’re gone? Make sure to your will includes who you appoint as their legal guardian and a backup guardian. Also be sure to include any other information pertaining to the specific needs of your children that may need to be addressed legally. This can prevent your estate from being drained of its valuable assets with court costs from potential family disputes over custody and care.
Make sure your life insurance plan is enough for what you need: This depends on factors such as marital status, whether or not you need joint income and other aspects of your life such as having dependents or children with special needs or tuition bills from a college education.
#3: Set Your Directives
Legal directives are a crucial part of estate planning. You might find that you want to create a revocable living trust to make sure the right assets of your estate end up in the right hands, a medical care directive to guarantee your medical wishes are granted in the case of your inability to handle them yourself, and a designate a power of attorney to manage your financial affairs (durable or limited). Be sure that when it comes to appointing who has the power of attorney as they may end up having your estate or even your life in their hands, and set up a backup in case your original choice is unattainable.
#4: Assess Your Beneficiaries
Because your estate falls into the hands of your beneficiaries, you must be extra careful about your choices for them. Check your retirement and insurance accounts to keep your designations on track (they can supersede the contents of your will), be sure that your estate goes to the right people by keeping up-to-date with who you’ve appointed, and be sure not to leave any beneficiary sections blank. Put a name down as a back up beneficiary in the case one of them happens to die before you do.
#5: Be Aware of the Estate Tax Laws In Your State
When it comes to estate taxes at a federal level, they’re often only applied to larger estates. Up to $11.7M is exempt from federal taxation this year. If your estate surpasses the limit for exemption, consider a grantor retained annuity trust (GRAT) or other trust to help lower the amount your heirs will have to pay off. For state taxes, some have estate taxes and inheritance taxes; others may not. Be sure to look into the guidelines for your state to know what’s best for you and your beneficiaries.
So, Is That Everything I Need to Plan My Estate?
This guide is here to help you gain some perspective to get started. Still, you must remember to weigh the value of professional help. You may need to reassess your estate more than once, while you can, to make sure your estate planning is well thought out and accurately curated to the needs of yourself and your beneficiaries.
If you’re ready to develop an estate plan that is designed just as you need it to be, or you have more questions on other legal matters, Kristin Waters Sullivan is here to answer them. Contact her today and discover professional legal advice and representation that works best for you!