Estate planning evokes visions of the top 1% finding ways to pass their property on to the next generation while avoiding estate taxes. But in reality, estate planning helps everyone ensure that their financial assets and other possessions pass to their heirs in the ways they intend. Here are some areas of estate planning that we can all focus on.
What are your intentions?
The first step is to take a look at all your “stuff” – financial and non-financial – and decide who you would like to receive each item if you should pass on. This is the true essence of estate planning.
Much of estate planning centers around your personal situation. Are you married? Do you have children? Are there other relatives you’d want to benefit in the event of your death? A charity, maybe?
Any or all of these are valid recipients of some or all of your assets and possessions upon your death. For most of us, our biggest assets are a home, investment and retirement accounts, or perhaps a life insurance policy. For some, there might be items such as collectibles, a classic car or other possessions. Passing any of these things to your desired heirs takes planning, to ensure that your intentions are clear and that they are met upon your death.
A will is the most basic estate planning document for offering instructions about who should inherit your property when you die. But a will can also be used for other purposes:
- Naming an executor of your estate
- Naming a guardian for minor children
- Providing for pets
- Designating how taxes and debts will be paid
A will doesn't cover jointly owned property such as a house, bank account or investment account. A will also doesn't cover accounts and assets that pass through a “beneficiary” designation.
Certain types of assets only pass to heirs through a beneficiary designation. These include retirement accounts like IRAs, 401(k)s and other workplace retirement plans. Life insurance annuities are also treated the same way.
These beneficiary designations are known as “will substitutes,” in that the beneficiaries listed override anything your will or any other document might state. Every few years, we hear about some case where a deceased husband forgets to change his beneficiary designation from his ex-wife to his current wife. Sadly, the ex-wife would receive the proceeds regardless of his intent.
It's important to check your beneficiary designations periodically to ensure they match up with your intentions. Life changes such as marriage, divorce, the death of a spouse or the birth/adoption of a child can necessitate changes in these designations.
A living trust is another way to hold title to property and other assets. The advantage of a living trust is that it is not subject to the probate process in your state. The trust can make it more efficient to pass the assets and property held in the trust to the beneficiaries. Also, a will becomes a matter of public record, while a living trust does not.
Not every will is subject to probate, and a living trust may or may not be appropriate for your situation. A will is still needed as a backup for property not included in the trust.
If you use a living trust, be sure to fund the trust once it has been established. This means changing the titles of the property and accounts to be included in the trust. But don't be suckered in by “trust mills” that often serve as vehicles to sell annuities and other insurance products that may or may not be appropriate for you.
If your children are minors, it’s important that your will includes a named guardian for them in the event of your death. If one isn't named, then the courts will name one. This may or may not be the person(s) who you would like to be entrusted with their care.
Estate planning is not just for the rich. We all have something we want to pass along to our spouse, children or others. Proper estate planning makes sure that our wishes will be adhered to upon our death. It is important to seek proper guidance in terms of drawing up documents such as a will or living trust to ensure that they reflect your final wishes.
*All content provided in this blog is supplied by Roger Wohlner and is for informational purposes only. Barclaycard makes no representations as to the accuracy or completeness of any information contained in the blog or found by following any link within this blog.
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