Usually, when it comes to retirement planning, one thing that usually gets done roughly around the same time is estate planning. Estate planning is a bit scary to think about since you essentially have to think of your death and prepare what you own to move on to someone else. Sure, having to plan out your own funeral can be scary, especially if it’s not even remotely close to being your time yet, but getting a lawyer and creating will just put it at a whole other level.
So, when it comes to estate planning, what is there to be done? You have to think of a lot of aspects, such as your kids, your partner, your other family members, your business if you own one, and the list goes on and on. So, here is everything you need to know about estate planning to help you out when it is time to plan it all out!
What is Estate Planning?
Estate planning is the series of preparation tasks that dictate how an individual’s assets will be dispersed upon their death or incapacitation. It also takes into account the management of an estate and the settlement of debts. While a lot of people tend to have this belief that it’s only for the wealthy, it’s actually not. Anyone who wants their final wishes carried out and their loved ones protected can do this.
Is Estate Planning Difficult?
For the most part, it can be daunting. You want to make sure everything is going where you want. If you have kids, then it’s only going to make things far more challenging. Plus, one thing that almost always happens is the big fight for inheritance; you’ll have your children fighting it, your spouse (maybe even past partners), your siblings, and the list keeps going on and on. They say that death brings the worst out in someone, and it’s usually the big fight of inheritance.
Whether you do estate planning or not, there will almost always be some sort of fight. Unless you’re an only child, plan to spend everything, or plan to donate everything, you can expect to think about the whole situation. In general, estate planning is usually difficult, but it’s mostly due to wanting to give everyone what they want, what you think they deserve, and trying to ensure that no fights happen. This is almost always the biggest challenge.
What All Do You Need for Estate Planning?
Honestly, it’s not exactly as easy as typing up a document, and that is that. While these are often shown in movies and shows, there isn’t any true credit to this. A typical estate plan consists of many important legal documents, including a last will and testament, power of attorney, trusts, healthcare proxies, and beneficiary designations. Having these documents in place ensures that your wishes are carried out, that your family members will be taken care of, and that your estate is passed on properly.
Who Do You Need to Hire to Help You with Estate Planning?
You’re always going to need to hire someone because a regular sheet of paper with your wishes will never be enough. A DIY estate plan could result in significant legal and financial headaches for your family. It’s important to hire an attorney who is well-versed in the latest laws, planning techniques, and strategies that can protect your family.
Plus, if a lawyer is involved, it’s just going to make the entire process easier, and your wishes will be accredited, so it’s not like there will be any questions about the lack of authenticity within the document or your wishes. You’ll also want to make sure your potential estate planner is licensed in your state and is a member of an organization that supports its members in staying current with the latest law and planning techniques.
In general, just be sure to do some thorough research. Sometimes, but not always, employers will offer their own lawyer or have a connection to a lawyer or law firm that can help. These plans typically offer affordable access to an attorney who can review your documents, answer questions and help you make sure that everything is in order.
How Can You Make Estate Planning Easier for You and Your Loved Ones?
One thing you should always keep in mind is the fact that you should try to do all the planning yourself. While you should absolutely ask your family what they would like after you pass on, it’s still best to sort this out rather than expect them to sort it out themselves. This is actually a huge issue and a major mistake that a lot of people make. Instead, think of it this way, your family is going to be upset about your passing.
They need to plan a funeral, make arrangements, try to mourn, and have their personal lives eaten at them; if they need to take care of your estate planning and what goes to who, it only makes things more complicated. The last thing you want is anything similar to that show Succession happening to where your whole family is fighting. So, here is everything you can do and what you need to know to make things easier for you as well as your loved ones.
Start Off With Your Life Insurance
If you don’t have life insurance, then it’s so important to go ahead and look into this immediately. You might want to take a look into survivorship life insurance if you haven’t already if you’re married, as it’s important for couples to consider this throughout their estate planning process. But generally speaking, you need to have a life insurance policy, and it can make the whole process of estate planning go on a tad easier.
A life insurance policy can help with estate planning by providing funds for paying federal and state estate taxes. These expenses can take a significant chunk out of the value of an estate and can leave family members with less than they expected or need. Adding life insurance to your estate plan can provide a tax-free death benefit, and it can also offset income taxes that would otherwise be paid on assets such as IRAs and 401(k)s when they’re inherited by family members. It can also be used in an ILIT too.
You’ll Want to Look into Asset Protection
A crucial component of estate planning involves preserving the value of assets for the future. This can help prevent financial complications due to lawsuits, divorce, bankruptcy, and other events that may occur during life. Asset protection strategies can help keep homes, businesses, and funds safe from seizure by creditors, former spouses, and others.
Such strategies include transferring property to an LLC or FLP, moving money offshore, and setting up irrevocable trusts. For the most part, this is something that the wealthy consider or even those who run a business. But everyone who’s doing estate planning should strongly consider asset protection. You deserve to have your final wishes happen with your estate, and this is the best way to go about it.
It Never Hurts to Consider a Trust
This is actually pretty common, especially for upper-middle-class and upper-class families. Typically trusts are made for their children, grandchildren, and sometimes even great-grandchildren. Trusts are legal “containers” that hold assets on behalf of beneficiaries. The grantor names a trustee to manage and distribute the trust’s assets. The trustee’s duties are to follow the terms of the trust, which spell out how a grantor wants their assets managed and distributed during their lifetime and upon their death.
Trusts offer several estate planning perks, including avoiding probate. Can trust be changed? Absolutely, as long as you’re alive, you can make changes whenever you want. It’s usually a lawyer that looks into these closely. But if you have specific wishes and you want to be completely sure they happen, then a trust fund could be the way to go about it.
You May Want to Consider a Health Care Directive
When it comes to estate planning, it’s usually about death, but it’s not solely just death. Besides, what if you slip into a coma? It’s important to think about your health and health-related decisions in advance in case the worst-case scenario happens. Health care directives, which can also include a power of attorney for health care, are vital legal tools to help ensure that your medical preferences are carried out if you become incapacitated.
While these documents may be uncomfortable to discuss with loved ones, it’s important that these wishes are made in writing while you are still healthy so that your family and physicians can honor them.
You’ll Need to Consider Taxes
While there are a lot of things that go into the tax situation of it, it’s still something to consider, such as how much you’re in debt, if there is back-taxes you owe, what limits of estate taxes are, and how you can lower them. Not just for you, but there’s the whole inheritance tax too for family members.