Estate planning was once reserved only for the richest individuals in society. Now, anyone with assets that will undergo a transfer in the event of their death can benefit from planning what will happen to their estate.
Even if you only have your home and a few possessions, a thorough plan will make the event of your death much easier on your loved ones. Using your estate plan, they’ll have a pre-made and approved guide to follow when carrying out your wishes and know well in advance exactly what they’ll receive.
This guide to estate planning will familiarize you with the standard process, as well as the options open to you for when to start.
What Is Estate Planning?
Estate planning is the process of deciding what is going to happen to your wealth and possessions in the final years of your life and after you pass away. One extremely common method of estate planning is writing a will, although usually estate planning involves more thorough preparation than simply naming heirs and guardians.
Planning for the ways you will transfer wealth to your chosen beneficiaries during the last years of your life, setting up trusts for your children, donating money to organizations, and outlining these in the legal document known officially as the ‘last will and testament is all part of estate planning. Every one of your assets will be accounted for, and you can ensure your wishes for these assets are fulfilled by law after your death.
Why Is Estate Planning Important?
Estate planning can be incredibly beneficial for individuals with many possessions or family members. However, this process can be helpful to anyone wanting to get their affairs in order. Planning for when you’re not here can bring advantages to your loved ones and your own peace of mind in the final years of your life. Listed below are some of the many reasons why estate planning is important.
Protect Your Family - Leaving your assets behind with no plan means any money or possessions you have will be dealt with by state law. We’ve all heard horror stories of families splitting apart after arguments over inheritance. So, by getting everybody on the same page during the estate planning process, you can avoid these complications and make sure each one of your loved ones is accounted for.
Tax-Efficiency - One of the most popular reasons that people choose to undergo the estate planning process is to lessen the burden of inheritance and death taxes that will fall on their family. By setting up trusts or giving gifts while you’re still alive, the amount of inheritance tax your loved ones will need to pay will be greatly lessened. Similarly, you can leave some money to account for funeral expenses and any estate taxes or property sales costs your loved ones will have to deal with.
Enjoy Your Final Years - The advantages of estate planning aren’t solely reserved for after your death. As above, the transfer of assets and wealth can take place while you’re still alive to lessen inheritance taxes. This means you’ll be able to know your family is covered, know how much you’ve got left to spend in your last years, and rest assured that your wishes will be carried out when you do pass away.
When Should You Begin the Estate Planning Process?
Although estate planning is often done in the final years of life, it’s never too early to get your affairs in order. Many people begin estate planning when they start to amass savings or investments, while others plan for their estate once they’ve gotten married and/or had children. Some people even choose to begin estate planning as soon as they turn 18.
There is no wealth or age threshold to start estate planning - when you feel the time is right for you, you can begin the process. However, it’s worth bearing in mind that as you age you will amass more wealth and assets that will need to be added to your estate plan. As well as this, you may meet people or join organizations that you wish to donate some of your wealth to, so your estate plan will need to be edited to include them. If you begin estate planning earlier in your life, you could choose not to make the documents legally binding until you officially retire.
The Process for Effective Estate Planning…
Looking at the steps for effective estate planning below, you can complete them in the order that best fits your circumstances. For example, if you’ve begun estate planning because you’ve had children, writing a will, and nominating a guardian may be the first step you’ll take.
- Find the Right Assistance
You will need to choose and name an individual whom you trust to act as your estate executor. This person will administer your will in the event of your death, apply for any necessary probate, carry out your wishes for your funeral, and generally manage your estate. They will also need to work closely with your attorney or legal representation.
There are benefits to choosing someone you know, as well as to choosing someone independent of your family and friends, such as your legal representation. The most important thing is selecting someone who you are sure will be able to carry out your wishes exactly as you’ve planned them even after experiencing your loss. When you’ve made your choice, you will need to complete a lasting (sometimes called a springing) financial power of attorney document.
- Create Inventories
You’ll need to write a list of every valuable item you own. This includes your property, cars and other vehicles, technological devices (such as your television, computer, speakers etc.), jewelry, art, furniture, and antiques. You can get these items appraised to list an exact value. However, you might simply like to provide an estimated value at the time of writing the list.
Next, you’ll need to list your assets that aren’t physical. This includes your bank accounts, as well as any other money you have stored in brokerage accounts, IRAs, and 401ks. You might also like to include any insurance policies you currently hold, especially those relating to health and life insurance. In the case of non-physical assets, you’ll be able to list their exact value at the time of itemization and any documents that prove these values, as well as the contact details for the firms that provide these accounts or insurance policies.
- Get Your Debts in Order
Unfortunately, debt doesn’t disappear when you pass away. However, in the event of your death, the responsibility for your death doesn’t pass to your spouse or family members. Instead, debts become the responsibility of your estate, meaning any debts you have will be paid using your physical and non-physical assets.
Making a list of any outstanding debts you have, such as credit cards and other loans and lines of credit like your mortgage(s), is beneficial for many reasons. You’ll be able to designate items or accounts specifically to relieve these debts. Depending on how early you make this list, you can begin to lessen debts while you’re still alive, ensuring most of your estate is inherited by your loved ones.
- Draft Your Will
After you’ve drafted your inventories, your will should lay out what you want to happen to these assets in the event of your death. If you have minor children or pets, you might like to name a suitable guardian (if no guardian is explicitly named, depending on your state laws guardianship will often pass to your spouse or the children’s other biological parent.) When it comes to the layout and legalization of your will, it’s beneficial to involve your attorney during this process to make sure the document is as thorough and binding as possible.
It’s worth bearing in mind that many bank accounts can be amended to include a TOD designation or a transfer on death designation. This means your estate executor will not need to apply for probate for these accounts, which can greatly speed up your loved ones receiving ownership of the assets you’ve left to them. The bank custodian can advise you of your options during this process.
- Officiate Any Documents
Once you’ve drafted a will and completed lists of your assets, these documents will need to be made legally binding. When it comes to your will, you should sign and date it in front of two independent witnesses (people who you are not related to). These witnesses should also sign and date your will before you get it notarized. Keep this version of the will somewhere safe, but make sure your estate executor knows where to find it. For your will and lists of assets, you should make 3 copies, one for your attorney or estate executor, one for your spouse, and one for you to put in safekeeping. Make sure to sign and date your lists and any unofficial documents or correspondence you have with your attorney or executor. This will ensure any amendments to the original documents are legalized and carried out.
Closing Thoughts
Depending on your circumstances, estate planning can sometimes be a lifelong process that will change and adapt to the wealth you amass and the family you create. For many people, estate planning is something that is done officially and legally once they have retired. You can begin estate planning whenever you feel it is right for you to designate heirs and the process for them to be paid out.
Regardless of when you start planning for your estate after you die, having a plan can help you lessen the effects of tax burdens, debt, and funeral costs on your family, order your assets and bequeath them as you see fit, and ensure all your loved ones are on the same page when it comes to their inheritance. For many people, estate planning is the best way to avoid stress, both in the last years of your life and after your death, giving your family the space to mourn.
Sources
- https://www.investopedia.com/articles/retirement/10/estate-planning-checklist.asp
- https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp
- https://www.navigatewealthgroup.co.uk/navigate-services/navigate-estate-planning/estate-planning-faqs
- https://www.powellslaw.com/2022/03/01/when-to-start-estate-planning/
- https://www.lloydsbank.com/wealth-management/what-is-estate-planning.html
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