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Estate planning

Put simply, Estate Planning refers to the preparation regarding the management, preservation and distribution of an individual’s assets in case of incapacitation or death. It includes making a will, setting up trusts and/or making charitable donations, naming beneficiaries and making funeral arrangements.

Making a will

A will provides instruction on how to handle both the deceased individual’s property and the custody of any minor children, should there be any. Through this document, the individual expresses their wishes in the event of their death, and names either a trustee or an executor to carry them out in their stead.
The first step in administering a deceased person’s estate is the probate, which will determine the authenticity of the will. The custodian of the will must take the will to probate court to be authenticated and proved to be the valid last testament of the deceased no more than 30 days after their death. The court will then officially appoint the executor, which gives them the power to act on behalf of the deceased.

It falls on the executor to locating, overseeing, and estimating the value of the deceased assets, including:

  • Retirement accounts
  • Stocks and bonds
  • Jewelry and other valuable items
  • Real estate
The first three, if subject to probate administration, are supervised by the probate court in the place where the deceased lived. Real estate, on the other hand, comes under the supervision of the probate court in the county where it’s located.

Another of the executors responsibilities is paying off any taxes or debt owed from the estate. This includes filing the final income tax returns on behalf of the deceased. Usually, creditors have a limited window after being notified of a debtor’s death to make a claim on the estate for the money owed. If a claim is rejected by the executor, the case will be taken to probate court, where the judge will have final say on whether the claim is legitimate.

Once inventory of the estate has been taken, the value calculated, and all the debt and taxes have been paid off, the court may authorize the executor to distribute the rest of the estate to the beneficiaries.

Estate taxes

Federal and state estate taxes can reduce the value of the estate considerably. These can be a large liability for the beneficiaries. Estate planning also allows couples and individual to take steps to reduce the impact created by tax liability, for example:

  • Making charitable contributions during the deceased's life reduces the financial size of the estate, which then lowers the estate tax bill, reducing the estate tax liability after death.
  • Transferring assets to an entity for education funding. This is more tax-efficient than having those assets transferred after death once the beneficiaries are college-aged, which may cause the related taxes to significantly lower the funds meant to fund education.
  • A married couple, for example, might set up an AB trust which divides into two separate trusts following the death of the first spouse.
  • Locking in the current value of an estate, and thus the tax liability, can also limit death taxes
  • Using life insurance, properly structured, to pay off death taxes may, if the available funds are enough, make it unnecessary to sell any of the estate to cover the taxes.

Basic steps to estate planning

First, make an inventory of your assets and estimate their value. You may be surprised by how much you’ve accumulated over the course of your life. These can be tangible or intangible assets.
Some examples of tangible assets are:
  • Cars, motorcycles, boats or any other vehicles
  • Any real estate property
  • Any collectible items such as coins, art or antiques
  • Any other personal possessions
Intangible assets may be:
  • Checking and savings accounts
  • Health savings accounts
  • Life insurance policies
  • Stocks or bonds
  • Retirement plans, whether a 401(k) or an individual retirement fund
  • Ownership in a business
Next you should establish your directives. Assess your needs as well as your family’s, and plan accordingly. Some directives you may find helpful are:
  • A trust. With a revocable living trust your assets may be transferred to your beneficiaries in the event of your death, bypassing the probate.
  • A medical care directive spells out your wishes for medical care should you no longer be able to make those decisions yourself. You can also give medical power of attorney to someone else, making them responsible for any decisions regarding your care.
  • Assigning financial power of attorney to someone else allows them to make financial decisions for you in the event that you’re unable to do so.
  • If you’re concerned about the idea of giving someone else complete power over you, you may want to consider a limited power of attorney, which, as its name suggests, limits the actions the appointed person can make on your behalf.
Make sure you choose who to appoint to each directive and have a backup in case your first choice is unable to fulfill their responsibilities.
Review your beneficiaries
Make sure the right assets go to the right people. Update the beneficiaries on your insurance policy or your retirement funds, if it’s necessary, and name contingent beneficiaries in case one of your primary beneficiaries dies before you, and the information is not updated
Consider professional help
If your estate is small and your wishes are fairly straightforward, an online or a packaged will-writing program may be sufficient for your needs. If you have any doubts about the process, it’s always best to consult an expert. And if your estate is large or you have any specific concerns, such as a special needs child, non familiar heirs, or a business issue, an estate attorney could be vital to maneuvering the sometimes complicated process.
Stay open to a reassessment
Life changes. The circumstances under which you made your original estate plan might not always be the same. You may have provided for a spouse you are no longer married to, or may have had a new child. And even if circumstances don’t change, laws sometimes do, so make sure you periodically reassess your plan to ensure it still covers your needs.
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