Estate planning and will preparation are essential topics that often get overlooked in financial planning. Although they may not be the most cheerful subjects, both are crucial for ensuring your assets are distributed according to your wishes while minimizing stress on your loved ones. By following some simple tips and seeking professional guidance, you can navigate the process with confidence.
Estate Planning and Will Preparation
Estate planning and will preparation are important tasks to ensure your assets are distributed according to your wishes after you pass away. Successful estate planning, therefore, must include careful consideration of your assets and what you want to do with them after you are gone. Several specific steps can help get you on the right track.
Start Early
No matter how old you are, thinking about the end of your life can be tough. However, it’s never too early to start forming a plan for your future estate. When you are just starting out, you probably won’t have many assets, but having a plan in place will always provide peace of mind for your loved ones and ensure your wishes are followed, no matter how far in the future that may be. As you age and add more assets to your portfolio, you will already have a blueprint to follow, which makes estate planning in the future much easier.
Identify Your Goals
The purpose of an estate plan, particularly elements in your will, is to ensure that your wishes are followed after death, both in terms of disseminating your assets as well as handling your end-of-life decisions. To that end, one of the first steps you need to take in your estate planning and will preparation is deciding what you want those directives and goals to be. For example, some popular estate planning goals include:
- Ensuring your family is financially secure
- Avoiding probate court
- Avoiding family disputes
- Funding education for your descendants
- Minimizing estate taxes
- Ensuring the proper transfer of property and business interests
Document Your Assets
Once you have decided on your goals, it’s time to figure out exactly what must happen to achieve them. Start by taking an inventory of your major assets, including real estate, vehicles, investments, bank accounts, retirement accounts, life insurance policies, and personal belongings. It’s also important to note any liabilities (or debts) that could exist after death, as well, as these will need to be paid prior to any disbursement of assets to beneficiaries.
Review Beneficiary Designations
The beneficiaries of your estate are the people you want to inherit your assets. This usually includes family members, such as spouses, children, grandchildren, friends, and charitable organizations. While naming beneficiaries in your will is important, during the estate planning process, it’s also necessary to make sure the beneficiaries named on individual accounts and policies are correct, as those people will legally supersede anyone you name in a will.
You also don’t want to leave the beneficiary section blank on any policy. If a beneficiary is not named, it will be up to the courts to decide who gets a payout through the probate process, which can be long and costly. Finally, in all beneficiary situations, make sure your instructions are specific to avoid confusion or disputes.
Create or Update Your Will
A will, or a last will and testament, is a legal document that outlines how you want your assets to be distributed after your death. In your will, you will name your beneficiaries, identify who should serve as a guardian for minor children, and name your estate’s executor, who is the person responsible for ensuring your wishes are carried out. When drafting a will, it’s important to work with a qualified attorney to ensure your will is legally valid and covers all aspects of your wishes and estate.
While your will is one of the most important documents in your estate planning package, you do not need to think of it as a static one. Life circumstances change, so it’s important to review and update your will and estate plan periodically, especially after major life events such as marriage, divorce, the birth of a child, a child reaching the age of majority (usually 18), and the acquisition of significant assets.
Consider Trusts
Depending on your situation, a trust may be a useful tool for managing and distributing your assets. A trust is a type of legal and financial product that holds money and other assets for beneficiaries. Often used for minor and young adult children, a trust is the only way to control the distribution of your assets after your death. When you establish a trust, you decide who it belongs to, what it contains, and how and when the assets are distributed. Trusts can provide flexibility, privacy, and maybe even tax benefits.
Appoint an Executor
An executor, or executor of estate, is the person responsible for carrying out the instructions in your last will and testament. This is an important role that comes with many responsibilities, especially for larger and more complex estates. Minimally, executors are responsible for informing others of your death, filing the will with the court, locating assets, paying taxes, and distributing assets to beneficiaries.
The executor should get paid for the time they put into this process, but it is often best to choose someone who is not otherwise named in your will to serve as its executor. Regardless, it is important to choose someone you know is trustworthy and capable of handling financial and legal matters. To that end, lawyers and financial planners often serve as neutral third parties who take on the role of executor.
Minimize Estate Taxes
One of the biggest benefits of estate planning is that it can help minimize estate taxes and probate costs, which reduce the amount of assets that ultimately pass to your beneficiaries. However, before you finalize your estate plan, make sure that you confirm the tax laws that will apply to your beneficiaries. Consult with a lawyer and a certified public accountant to learn what taxes might apply to your estate and what strategies you can use to minimize them.
Seek Professional Guidance
When it comes to making plans for your estate and will, regardless of the value of your assets, it’s important to seek help rather than going it alone. Getting professional guidance from a legal or financial professional can help you take stock of your financial situation and plan appropriately for the future.
