How to Get Started on Your Estate Plan

Have you considered what will happen to your assets if you pass away or become disabled? While this is not an easy topic, estate planning is important to consider at any age. Planning for the unthinkable can make life easier for the people who depend on you, and the sooner you start, the more flexibility everyone could have.

Yet, many people neglect estate planning until very late in life, and some forego it entirely. This is understandable since wills and estate plans can be complicated, and many people don’t know where to start. Emotional issues can play a role, too. Facing your own mortality or the possibility of unfavorable events can be unsettling.

Still, preparing for the inevitable is vital for almost everyone. Those who do so are able to transfer their assets to loved ones based on their preferences, as well as provide direction for end-of-life care and financial management in case you’re unable to make your wishes known.

In most cases, you will need an estate planning lawyer, accountant, or financial advisor specializing in these issues to help develop a plan. But understanding some basic concepts, strategies, and tools is a good start to approaching your own estate plan.

What Is Estate Planning?

Estate planning may seem like a concern only for those with substantial wealth, but almost everyone requires the basics regardless of their asset level.

A comprehensive estate plan should include several legal documents which outline everything from how you want your assets to be distributed upon your passing, to who can make decisions on your behalf should you become unable to advocate for yourself.

Your estate plan may also employ financial and legal tools that can reduce taxes, benefit charities, provide income and capital appreciation to you and your heirs, facilitate business succession, and set conditions for asset transfers to beneficiaries.

Why Do You Need Estate Planning?

If you die without an estate plan, your assets will still be distributed, but possibly not according to your wishes. Your estate may also take longer to settle, creating delays for those inheriting your assets. Your loved ones may pay more in taxes than necessary, or there may be arguments between individuals about who gets what.

What Happens if You Don’t Have an Estate Plan?

If you pass away before you make a will, your assets will go into probate, a lengthy, sometimes contentious process in which the state decides how your legacy is distributed.

A person who dies intestate, or without a will, has no opportunity to name a trusted representative to oversee this process. Instead, the probate court appoints an administrator to manage the estate’s distribution.

Estate laws vary, but in most cases, assets are distributed to any surviving spouse, children, parents, siblings, or grandchildren in an order determined by state law. These relatives will have to prove they are your legal relations, which can be time-consuming. You also are not able to dictate how much each beneficiary receives.

Without a will, some states don’t recognize beneficiaries without a legal relationship to the person who has died such as an unmarried partner or close friend. There is also a possibility that some of your loved ones may not be identified or located and will not receive any inheritance.

Your heirs could end up paying more for your legacy than they would have if you had established an estate plan. People who die intestate miss opportunities to manage the tax impact of asset transfers through lifetime gifting and trust strategies.

Finally, without a sound estate plan, including powers of attorney for healthcare and financial decisions, care and support toward the end of your life can become a burden to you and your loved ones.

What Are the Basic Components of an Estate Plan?

You can take control over how your assets are used both during and after your lifetime by developing a comprehensive estate plan. Every estate plan is different, but most will include some combination of these basic elements:

A Last will and testament is a legal document that specifies exactly how your assets will be distributed after you die. They can also determine how more complex holdings like family businesses and real estate should be transferred.

If you have minor children, a will can indicate who should care for them if you (and any other primary caregivers) pass away before they reach adulthood.

Power of attorney designates a trusted representative to manage your finances if you become unable to do so. A healthcare power of attorney specifies who will oversee your medical treatment and care if you are unable to make these decisions for yourself.

Trusts and living trusts are legal agreements giving a third party, or trustee, the authority to manage assets on behalf of your beneficiaries. They can be used to transfer assets tax efficiently, either during your lifetime or afterward, and allow you to continue to enjoy the benefits of assets you own, like a family home or other properties, while providing income or future appreciation to a loved one or charity.

Trusts can also let you control how and when your assets are distributed. For example, you can set a minimum age for your children or grandchildren to receive distributions. And in the event of divorce or bankruptcy, trusts can protect assets from legal claims.

Medical directives let you control how you are cared for if you become incapacitated or can no longer state your wishes. These documents can stipulate how much care you prefer if you become seriously ill. Making decisions about end-of-life care can be terribly stressful for your loved ones. By laying out your preferences beforehand, you can spare them part of that burden.

Beneficiary designations can be made for assets that aren’t required to go through the probate process. For instance, retirement accounts, life insurance benefits, and annuities are all transferred directly to the designated beneficiaries listed on each account upon the owners’ passing.

For bank and investment account assets, you can set up Transfer on Death (TOD) instructions, so those accounts avoid probate and go directly to your beneficiaries. Make sure your beneficiary designations are correct and up to date, so this process works smoothly.

An Estate Plan Can Give You Peace of Mind

Having an estate plan can help you feel comfortable that your affairs will be handled just the way you want. A thorough estate plan ensures your beneficiaries receive your assets in a timely, tax-efficient manner. It also gives people you trust the authority to make decisions according to your wishes. If you have questions about your estate plan or want to get started on one, contact the team at Trinity Wealth Management.

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