Estate Planning: Planning Now Can Go a Long Way

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2020 might go down in history as the year of canceled and changed plans, but it is over and 2021 is here. We are all hoping that the new year will resemble normalcy soon. Kicking off 2021 with a few simple money management plans is a great way to start that and turn over a new leaf. Now is the time to get organized, so first up, let’s focus on a few easy estate planning strategies.

While many of us put it off, estate planning is a critical component of your personal finances. Here's how to get started.

What Is an Estate?

In the simplest terms, an estate is everything you own—money and assets, including your home and your car—at the time of your death. When you decide—in advance and in writing—who will get your assets and money, that’s estate planning.

Your heirs are the people who will receive your money and assets after you’re gone. The act of giving these things to your heirs is called asset distribution.

Your debts are also part of your estate and anything you owe on credit cards and loans may have to be paid off first by your estate before any further money or assets are distributed to your heirs.

Estate planning is not entirely about money. You may also leave instructions for how your incapacitation or death may be handled. For instance, you may not want to be kept on a life-support system if you were in a coma. You may want to be cremated instead of buried. These instructions can be included in your estate planning.

The Art of Giving Your Estate Away

Estate planning means deciding who will inherit your assets and manage your responsibilities if you die or are incapacitated. Though it might seem like a bit of a strange or sad task, think about it for a moment. Your possessions and the things that are most important to you…you get to decide what happens to them when you are no longer here or able to use them.

It’s a very important project, but even more important is the concept that you get to make those decisions while you are able to do it. It can be both important and very personally satisfying.

Estate Planning

Here are a few simple steps that can save you and your loved ones hassle down the road.

Taking Inventory and Establishing Legal Directives

A good first step in estate planning is taking inventory of your tangible and intangible assets and estimating their value. Your tangible assets include your home or other real estate you own, as well as vehicles and other personal possessions. Intangible assets might include investments in stocks, bonds, or mutual funds, ownership in a business, or life insurance policies. To determine the worth of some of these items, outside valuations can help, like recent appraisals of your home or business, and statements from your financial accounts.

Questions To Ask Before Estate Planning

  • Who will be the executor? Be sure it’s someone you can trust with your life. Literally, that is. For more about the executor’s duties, see my post about handling a loved one’s final affairs.
  • Who will receive my assets? In most cases, it’s children or next of kin, but you can leave your assets to anyone or any organization, including charities.
  • Who gets custody of my minor children? Basically, who are your children’s godparents? Who is responsible for and worthy of raising your children if you are no longer there?

Legal Directives

Once you know the value of your assets and where they are going, it’s a good idea to think about a few key legal directives. A last will and testament specifies the answers to the questions of the last section. Depending on your needs, you may prefer to use a revocable living trust to distribute your assets instead.

You might want to establish a medical care directive, also called a living will. This document contains information about your preferences for medical care if you are no longer able to make those decisions.

Setting up a durable financial power of attorney can also be helpful. This allows another trusted person to handle your financial decisions if you are no longer able to do so. If turning over complete control to someone else feels concerning, consider setting up a limited power of attorney.

Be sure that all of your legal documents are properly executed according to the laws of your state. This may mean having them signed by witnesses and notarized.

Updating Your Plans

Life can be full of unexpected changes, and as these changes occur, it’s a good idea to revisit your estate plan. Marriage, divorce, the birth of a new child, a career change—all of these events can impact your estate plan. It’s still a good idea to check in on your estate plan from time to time even if your situation hasn’t been significantly altered, because laws surrounding estate planning can change.

If you have recently moved to a new state or are planning a move soon, be sure to check up on your new state’s estate laws, because taxes can vary from state to state. A tax professional can be a helpful resource for navigating how to update your estate plan. Estate planning might seem intimidating, but like all money management, a little planning goes a long way.

Communicate

Make sure to safely store your will and other legal documents, and communicate with your executor and loved ones so they know where to find them.

Also, you may want to communicate with your loved ones about why you made certain decisions, especially if you want to avoid hurt feelings or family disputes.

Do You Need an Attorney or Tax Professional?

These days, there are plenty of tools and sites that help you create your own legal will and other documents, such as Nolo.

You might want to educate yourself all you can and make sure a professional has your back and can help you navigate the choppy waters of estate planning. A professional might help you create the documents that can make your estate official and advise you on how taxes may affect your plan.

Ultimately, you will have the final say on how you want your estate to be managed and executed, but a professional could help you arrive at educated, rational, and sensible decisions. They could also help communicate your objectives so that mistakes and miscommunications can be avoided.

They may even be able to help you plan your estate so that you can pay taxes correctly and possible pay even less in taxes than you would have done on your own. Whether you should do it yourself or use a professional depends upon the complexity of your estate and situation.

Final Thoughts

Planning what will ultimately happen to your estate is pretty important. Your family and friends and even your favorite charities should benefit from what you have accomplished in your life, if that is what you decide. Proper estate planning will make that happen for you.

It’s so much easier to do the planning while you are fit and have clearly defined goals. Yes, an estate professional will charge you a fee to help get it done, but the cost of having expert help can ultimately save you thousands of dollars in costs, legal and otherwise. Make sure your estate goes where you want it to after working so hard to build your wealth for your family!

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