It may not be a fun topic to discuss, but taking steps to plan your estate now will help ensure your family, property, and finances are taken care of after you die. There are several components of estate planning, including wills, trusts, and powers of attorney.
Here are a few things you should know about estate planning:
1. Everyone needs a will. In your will, you can direct a person (or persons) as your legal representative(s) to carry out your wishes and designate who will receive your property and assets upon your death. A will must pass through probate. In other words, a court will oversee the administration of your will and ensure that it is carried out the way you wanted. As such, a will becomes public record.
A will also allows you to predetermine who will take care of your kids — this is the primary reason even young adults who have children should have a will. If you die without a will, it can be very costly to your family and heirs, and you will have no say over the division of your assets. State heirship laws take over.
For more on wills, read this blog: Top 4 Reasons Everyone Should Have a Will
2. You don’t have to be wealthy to benefit a trust. A trust is often used when dealing with minors. If you have a trust, you can ensure that assets left behind that are to be used by and for your children are not spent by someone else. Trusts can also be beneficial if you are leaving money to someone who may not be mature enough to handle it appropriately. Finally, trusts can also reduce the taxes your heirs might otherwise have to pay and provide greater protection of your assets from creditors and lawsuits.
3. Discuss your plans with your family. After you plan your estate, take time to discuss those plans with your heirs to help prevent confusion or disputes down the road. Family conflicts are unfortunately common when dealing with a loved one’s estate, but by planning ahead, you can help reduce or eliminate any potential arguments among your family and children after you die.
4. Estate Taxes (also known as the Death Tax). The Federal estate tax exemption is set at $5,340,000 this year for an individual. That means, any estates under $5.34 million are exempt from Federal taxes. Amounts over $5.34 million will be taxed up to 40 percent.
You can leave an unlimited amount to your spouse tax-free, but doing so increases your spouse’s taxable estate, meaning your children will likely pay more in estate taxes upon your spouse’s death. Also, by filing an estate tax return upon the death of a spouse, you can increase the surviving spouse’s estate tax exemption to $10,680,000.
Navigating through the estate planning process can be confusing, but an experienced wills and trust attorney can help you plan your estate and guide you through the process. An attorney will explain the legal terms and help ensure that your will or trust is prepared properly so there are no questions in the event of your death. Your attorney can also help review your financial assets and double check whom can receive what from your retirement accounts.
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