Estate planning conversations are never easy or the most enjoyable thing in the world, we know!
However, it is so necessary to be prepared for the “what ifs.” It is important to plan for those inevitable moments now so that you can enjoy your time with your loved ones without the stress of money and wills later on. Trust us, you will thank yourself later if anything ever happens.
To help ease the process, here are five things to keep in mind when estate planning:
1. Know your wishes and how you want to leave a legacy.
Before you start estate planning, take some time to think about what your goals for the future might be. Do you want to provide for certain people or charities? Are there particular possessions you want to go to certain individuals? Your very first step is to figure out these details that will help guide the rest of the process and ensure that everything goes according to plan.
In many cases, preserving wealth for future generations is an important goal for those engaging in estate planning. What types of needs will your family members have in the future? Is there something you have always wanted to give your children? This type of intergenerational planning can involve creating trusts which transfer assets under certain conditions while avoiding probate court proceedings and potentially reducing taxes owed on the transfer.
Are you and your loved ones super passionate about a certain charity or organization? A great way to build generational wealth is by creating a legacy charity or foundation. Donating a certain percentage of your funds throughout life will enable you to leave behind a lasting legacy that continues long after you’re gone. By leveraging philanthropy as part of your estate plan, you can have greater control over where your money goes and how it’s used well beyond your lifetime.
2. Consider Taxes & Debts.
Don’t forget about taxes and debts when designing an estate plan; they can have a major impact on how much money is available for beneficiaries after death.
Do you have any debt that needs to be taken care of? Secured debts like mortgages or car loans must be paid off before other unsecured debts are addressed. Medical bills, credit card debt and unpaid taxes are common examples of unsecured debt. If there isn’t enough money in the estate to cover all of your liabilities, heirs may have to use their inheritance money or sell assets in order to pay off creditors. After all your debt is taken care of, you can clearly assess what is left for your beneficiaries.
Want to avoid those nasty taxes? One way to minimize tax liability is through gifting; this allows individuals to transfer their wealth from one generation to another without having their estate taxed at death. It is important that any gifting plans are structured in accordance with both federal and state laws in order to maximize their effectiveness and take advantage of any available deductions or exclusions.
3. Choose the Right Executor.
The executor of your estate is in charge of carrying out your wishes. It’s important to choose someone you trust and someone knowledgeable to ensure that your wishes are carried out the way you’d like them to be. Consider who might be best suited for this role, taking into account their skills, knowledge, and possible conflicts of interest. This will help ensure that everything goes according to plan and there are no delays or complications with your estate.
Your best friend may or may not be the ideal executor. Although your executor should be someone you know and trust, they should have some level of financial understanding of investments and taxes. This person should possess excellent organizational skills and be willing and able to communicate with your family on a regular basis.. It’s also important that they are familiar with relevant laws governing wills and estates. Most importantly, this person should be capable of making difficult decisions with impartiality while respecting the wishes of you and your family.
4. Review Your Estate Plan Regularly.
Estate planning isn’t a one-time thing; it should be reviewed regularly as changes in tax laws or other factors can affect how things are handled after death or incapacitation. Make sure you review your estate plan at least once a year and update it as needed to make sure everything remains up-to-date and reflects any changes in your life or financial situation.
Life changes quickly. You are going to want to make sure that your estate plan reflects the current stage of yours or your loved one’s life. If you get married or divorced, have children or grandchildren, move out of state or experience any other major life changes, it’s important to make sure that these documents still reflect those changes accurately.
Sometimes you don’t control these big life changes. Tax laws change frequently and unexpectedly at both federal and state levels, so former deductions may no longer apply while others may be available now that weren’t before. If you don’t have current tax information included in your estate planning documents, they could become invalid in the event that they need to be used.
5. Consider Alternatives.
Estate planning doesn’t just involve wills and trusts; there may be other options available depending on the size of your estate, such as Designated Beneficiary Accounts (DBAs) or Qualified Retirement Accounts (QRAs). Before settling on one type of estate plan, consider all the alternatives so you can find the best option that fits with your goals, tax situation, and other factors.
DBAs are created by an individual as part of their estate planning and allow the designated beneficiary to inherit the account upon their death without going through probate. With DBAs, the account holder has greater control over who inherits the funds in the account, when they inherit it, and how much they receive. This can be beneficial from an estate planning perspective because it allows you to easily pass on assets to your beneficiaries without any hassle or delays. In addition, DBAs also provide flexibility for beneficiaries in terms of when they can access the funds and how they use them.
QRAs are employer-sponsored retirement accounts, such as a 401(k) or IRA, that offer a range of investment options to help employees save for retirement. QRAs offer more tax advantages as contributions are often made with pre-tax dollars and investments typically grow on a tax-deferred basis until withdrawal at retirement age. Withdrawals from QRAs typically incur taxes so it’s important to understand the rules around withdrawing money from these accounts. It’s important to consider both DBAs and QRAs when creating an estate plan so that you can take advantage of both options depending on your goals and circumstances.
Stuck on where to begin with estate planning?
Getting started early means that you can enjoy your time with loved ones stress free.
Although it seems overwhelming now, you will be so relieved when you have a plan in place. Taking these steps now can save family members from having to make difficult decisions later on down the road. Stop saying “what if” and start estate planning now.
Grab our What If Binder today to get started!