Estate planning may seem like an exclusive service reserved only for wealthy families, but middle-class households need one too. Without one, your family could face large tax bills and court fees as well as decisions you would rather avoid taking place outside your control.
Collaboration with an estate plan team that offers extensive legal, tax and investment experience is crucial when creating an estate plan. When creating your plan it’s essential that these key items are considered:
Identifying Your Beneficiaries
Naming beneficiaries for your financial accounts and life insurance policies is essential in ensuring they pass to those you’d like them to go to. Doing this ensures your assets pass to those whom or entities you want them to go.
Beneficiaries differ from heirs in that they must be specifically named, while heirs typically belong to your relatives. Beneficiary designations on accounts often supersede any instructions provided in your will; so it’s essential that they remain up-to-date.
At the same time, it’s also wise to designate backup and contingent beneficiaries in case your primary beneficiary becomes unavailable or passes away before receiving your asset. You can access this list online or contact your plan administrator.
Establishing a Will
Wills form the cornerstone of any estate plan. A will outlines your property, assets and debts (excluding mortgages or lines of credit ), along with whom you’ve appointed to manage these things after you pass.
Always list your beneficiaries clearly. This could include any individuals or organizations you want to benefit from your assets. Be sure to list their full legal names as well as the nature of their relationship to you.
After any significant life event, it’s wise to update your will so you can rest assured that your wishes will be carried out as intended. A thorough estate plan may also prevent heirs from having to pay taxes and alleviate family disputes.
Naming Guardians for Your Children
Estate planning for children is of utmost importance as it allows you to express your wishes if you’re no longer capable of providing care yourself, such as designating guardians to raise them if needed and providing financial security if you can no longer care for them yourself.
Consider who will make an appropriate guardian for your children with great care, keeping in mind their financial capability as one factor, but this shouldn’t disqualify someone if they would otherwise make the perfect guardian.
Creating a Trust
Trusts can help reduce estate taxes while providing for specific beneficiaries like children or a charity. In addition, trusts help avoid probate, which can be time consuming and expensive.
A trustee can be anyone from family to a neutral professional. When selecting your trustee, be sure to speak to your lawyer and determine who will manage its assets and administer its trust.
Though some might associate trusts only with the ultra-wealthy, they can actually benefit families of all sizes. Trusts provide flexibility and privacy protection; examples include education trusts for children, spendthrift trusts and qualified personal residence trusts.
Creating a Power of Attorney
A power of attorney is a legal document that grants another individual or organization permission to make financial decisions for you, such as real estate purchases and car purchases as well as stocks, life insurance policies or joint accounts.
Your attorney-in-fact should be someone you trust to carry out your wishes if ever incapacitated by illness or disability.
POAs can also help avoid probate by designating beneficiaries on assets that transfer automatically, like joint ownership and life insurance policies. Since errors can arise from these methods, regularly reviewing them is key and keeping a copy in an offsite location is recommended for safety.
Managing Your Assets
Planned asset transfer can give you control of what happens with your estate after death and can also help minimize income, gift and estate taxes.
Documenting your plans carefully is key to avoiding costly family court battles and fulfilling your wishes according to plan. A well-drafted will, net worth summaries and structures put in place to manage wealth can all help. Furthermore, communicating with beneficiaries about how best to use their inheritances may provide added motivation towards reaching their goals more effectively.
