“Estate planning” sounds like a problem for the rich and famous. But you don’t have to be either to have an estate. Your estate is just the total value of everything you own. Making sure it’s distributed according to your wishes after you’re gone is a big part of protecting your legacy and your family’s financial future. Smart planning may reduce the taxes, fees and communication breakdowns your loved ones encounter later.
Determining the Size of Your Estate
Your assets can include your investments, retirement savings, insurance policies, real estate and business holdings. It’s important to know the size of your estate before you begin thinking about how you want it divided and the type of legacy you wish to leave. Will it all go to your spouse, children and grandchildren, or do you have a favorite charity you’d like your money to go to? Ask yourself these questions: Who do I want handling my financial affairs if I’m ever incapacitated? Who do I want to inherit my assets?
Getting Legal Documents in Order
You need to have a will to help ensure your wishes are carried out. A will expresses your wishes after you’re gone. Dying without one can be costly to your heirs and leaves you no say over who gets your assets. A will is also where you identify the guardians for your minor children, as well as your health care proxy and power of attorney. An experienced attorney can help you draft and notarize your will.
Protecting Your Estate
There are many different types of products and strategies that can help you reduce taxes and protect your estate.
- A whole life insurance policy provides a death benefit that can help pay estate taxes and other expenses.
- Trusts are another way to safeguard your estate. They can be useful if you want to establish conditions on how and when your assets are to be distributed upon your death. They may help reduce estate and gift taxes, distribute assets to heirs efficiently without the cost, delay and publicity of probate court, and they may be able to better protect your assets from creditors and lawsuits. Additionally, it’s always wise to name a successor trustee. An experienced attorney can help you set up a trust that is appropriate for your situation.
- Traditional Retirement Plan Vehicles, such as 401(k)s, Roth IRAs and SEP IRAs, should be part of any pre-estate planning strategy. They can help you build wealth with tax-deferred or tax-exempt growth. However, it’s important to consider the tax consequences associated with leaving these plans to your beneficiaries and incorporate an effective retirement income drawdown strategy into your overall financial plan.
Involve Your Loved Ones
The most important part of estate planning is to take the time to create a solid strategy. If no one is aware of your wishes, family disputes can prevent them from coming to fruition. Discuss critical decisions you’re considering with your loved ones, so you can rest assured your plans will be respected.