Estate planning is one of the best options you can do to manage and preserve your wealth. Proper estate planning lets you create a strategy for managing and distributing your assets should you pass away.
Although most people assume that estate planning is only for the wealthy, people of all backgrounds can benefit greatly from a well-thought-out estate plan.
If you want to learn how to secure your family’s financial future, you’ve come to the right place. In this blog, we’ll discuss why estate planning is important for everyone and how to start one in just a few steps.
What is Estate Planning?
Estate planning is the process of directing and distributing a person’s assets and debts after death or if they become too incapacitated to handle these themselves. Its primary goal is to create an action plan that ensures your finances will be managed according to your wishes.
There are six components to a comprehensive estate plan:
Wills & Trusts
A will is a standard document in estate plans. It typically names the executor or the legal representative who will oversee your assets and outlines how they will be distributed.
Meanwhile, a trust is a legal agreement where the trustor gives a trustee the right to hold the assets on behalf of a beneficiary. There are four main types of trusts you can include in your estate plan:
Living Trusts: Trusts that were created while the trustor is still alive.
Testamentary Trusts: Trusts created after the trustor’s death and according to their will.
Irrevocable Trust: The terms can no longer be changed after its creation.
Durable Power of Attorney (POA)
A durable POA is a legal authorization you give to a designated person or agent, allowing them to act on your behalf if you can’t do so yourself. Without a POA, the court of law will be the one to decide what should be done to your assets.
Beneficiary designations outline who will receive your specific accounts, like your 401K, insurance policies, and IRA.
Letter of Intent
This document is typically addressed to an executor or a beneficiary and should explain what you want done to a specific asset. Some letters of intent include funeral details and any other specific requests the deceased may have.
Healthcare Power of Attorney (HCPA)
HCPA authorizes a designated person to make important medical decisions on your behalf. This document can be a useful supplement to a living will, explaining your preferences for end-of-life care.
Guardianship designation states who will care for your minor children and other dependents you’re responsible for should you pass away.
Why is Estate Planning Important?
There are three reasons why estate planning is important for everyone, regardless of age and assets.
Estate Plans is Not Just A Will
Most people make the common mistake of thinking that an estate plan and a will are the same. However, they’re very different from one another.
A will outline what will happen to your assets if you pass away, while an estate plan goes beyond managing your holdings, as it lets you appoint specific people to make financial and medical decisions on your behalf. Additionally, it allows you to have medical directives indicating what kind of end-of-life care you wish to have.
Estate Plans Save Time & Money
Without an estate plan, the probate court will determine what will happen to your assets. They’ll freeze your holdings while deciding what to do with them. While all this is happening, they’ll look for a representative to distribute them on your behalf.
Typically, the probate court will assign the surviving spouse. But if the deceased has no partner or any other close family member to present them, they’ll choose a public trustee.
The entire process tends to be expensive and time-consuming. By the time the probate court reaches a decision, your estate has accumulated hefty fees, which your surviving family has to pay for.
Fortunately, you can avoid all these by creating a will that assigns an executor for your estate and assigning beneficiaries to your investment accounts.
Estate Plan Reduce Tax Liabilities
Most wealthy investors create estate plans to protect their families from hefty state estate and inheritance taxes. Both are based on the deceased’s assets and are paid for by their heirs or beneficiaries.
Fortunately, you can reduce these liabilities by setting up trusts. Some types of trusts, like the irrevocable trust, can help you reduce your tax burdens.
Estate Planning Tips You Need to Know About
There’s no denying that estate planning can be complicated. So, to help you out, here are a couple of estate planning tips you can use.
Make A List
Before you start your estate planning, you need to list down all of your assets and debts. Making a list will help you get a handle on your holdings and the liabilities you could leave to your surviving family.
Make sure you list down all of your tangible and intangible assets. Tangible items include real estate properties, vehicles, and collectibles like art and antiques. Meanwhile, intangible items in your estate include bank accounts, stocks, insurance policies, and retirement plans like your 401(K).
Aside from this, you must also list any outstanding debts like mortgages, credit cards, and other loans you haven’t paid off yet. This way, your executor can track down creditors and notify them of your passing.
Review Your Beneficiaries
Although your estate plan will outline who will receive which asset, you must review the beneficiaries of certain items and ensure that they’re correct.
For example, certain retirement plans and insurance accounts have beneficiary designations. These nominations could outweigh the statement in your will, so keep track of them and revise them accordingly.
Consult A Professional
Each state has its own rules and regulations for estate planning, which can be difficult to understand. So, if you need help, we recommend you consult tax advisors and financial planners.
These professionals will set you on the right path of estate planning and can help you create a comprehensive estate plan that fits your needs and goals.
Plan For The Future
In conclusion, estate planning is not just for the wealthy. This process is vital for anyone who wishes to protect their legacy and ensure their loved ones are cared for years to come.
With these essential estate planning tips, you can safeguard your assets, minimize taxes, and provide clear guidance for your family’s future.
If you’re ready to start planning for the future or want to revisit your estate plan, look no further than NCH. Our team of business specialists offers expert guidance and tailored solutions that will help you secure your legacy with confidence.
Contact us today for a consultation and take the first step toward securing your family’s future. For more information on our services, visit our website here.
DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.