Estate planning is a tool used to help individuals and families arrange for the proper handling of an estate after a person has passed on. As uncomfortable as it may be to discuss these things, estate planning is an important tool that helps ease the transition a family faces when a loved one passes away. It’s also a great tool to ensure an estate will receive the proper care and legacy. No matter how big or small an estate is, working to create a proper estate plan can help make dealing with the aftermath of the estate much easier on everyone involved.
Today, we’re sharing 4 Tips to Remember When Creating an Estate Plan to remember as you begin the process of creating an estate plan or simply want to evaluate the one you currently have in place.
1. Estate planning also covers time of incapacity. When we think of estate planning most of us consider the estate once a person has passed on. However, there are other factors to take into consideration; if a person becomes incapacitated (i.e. unable to care for himself or herself) and is in need of someone to run the estate on his or her behalf proper estate planning can take care of these concerns. Wills, trust, beneficiary designations, and powers of attorney are examples of important tools used to help manage one’s estate if an unfortunate event leaves one incapacitated. Estate planning is also an extremely important tool if you have children. A will can designate legal guardianship over your children should something happen to you.
As a brief explanation, a will is a legal document executed after the owner’s death. It’s subject to a probate period, a court hearing to distribute property after death. We will expound upon the probate period in the next point. A living trust, on the other hand, can be created and used while a person is still alive. Trusts are legal documents where assets can be protected, used, and designated for beneficiaries. Trusts can avoid probate and speed up the distribution of assets upon death.
2. It’s important to understand how probate works. Like we talked about before, probate is a process in which the court system oversees the distribution of assets – most typically per a will – of the deceased person. The probate process verifies the validity of the will, appoints a personal representative to act as a fiduciary to control the estate during the interim, works with creditors owed against the estate, distributes funds per beneficiary designations, and lastly closes the estate record. The process of probate, like other legal processes, can take quite a long time and can be pricey. Working with an estate planner like our team at TrueNorth Wealth can help speed up this process, enabling closure more quickly to family members and your estate.
Tax considerations play an important role in estate planning. It’s important to discuss tax considerations with your estate planner when creating your will. If not designated properly, your beneficiaries may lose significant amounts of your estate gift to taxes after your death. Creating an estate plan can help reduce these burdens and leave your loved ones with more of the gifts you intended for them.
When an estate is left to a spouse or qualified charity, the amount is not subject to U.S. Federal estate taxes. Estates left to any other person are subject to U.S. Federal estate taxes if the amount is valued at a certain threshold set by the government. For example, an estate left to the decedent’s children would be taxed if the estate is over said threshold. In 2015, the threshold was set at $5.4 million dollars, so while this rule may only affect a certain percentage of the population, it’s an important one to consider while making estate plans. Besides property, there are also considerations in dispersing retirement plans like 401(k), IRA plans, and life insurance policies. All of these considerations go into creating the right estate plan for you and your family.
3. Work with a team of professionals. Establishing an estate plan that adequately fits your needs and plans for your inheritance is difficult. It’s not an easy process to understand the intricacies of estate laws and regulations; that’s why our team of qualified and certified financial planners can assist you during this process. We also regularly work with estate attorneys and tax professionals specializing in estate regulations to surround you with the best and most competent financial team available.