Whether you’re a business owner or have assets that have yet to be claimed, creating an estate plan will benefit you greatly. Not having a plan will lead to confusion and emotional stress in the event of untimely death.
Generally, estate plans are created with the guidance of an attorney, but before you get one involved, you should always know what to expect and how to plan smartly. A thorough estate plan includes provisions that allow your family members to access or control your assets if you are unable to do so. If you have underage children, an estate plan will be of greater benefit as it lists guardians in case your spouse cannot care for them after your death.
So, here are a few tips to set you in the right direction to create an estate plan.
1- List estate plan must-haves
Before you begin, it is smart to list things you will need to manage your time effectively. Here is a list to help you
- A durable power of attorney
- Beneficiary designations
- Create a will/trust
- Healthcare power of attorney
- Guardianship designations
- Letter of intent
Know that a will and an estate plan aren’t the same. If you’re wondering what is the purpose of a will and why it is not the same as an estate plan, the latter provides detailed directives for all your assets, trusts, guardianship wishes, etc. An estate plan ensures all assets are transferred without any hiccups to your heirs upon your death.
In addition to the documents listed above, a plan should consider insurance, such as life insurance, long-term care insurance that covers old age, and annuity to generate some income until death.
2- Determine your net worth
After compiling the documents you need, determine your net worth. You might think you don’t have enough to justify estate planning, but you’ll be surprised when you start looking around. You can calculate your net worth with a simple calculation by adding up rough estimates of the values of all of your assets. Now, what do assets mean? Here are some examples.
- Home, land, flats, and any other real estate
- Collectibles like antiques, coins, or trading cards
- Vehicles like cars, motorbikes, boats, etc.
- Any other tangible personal possession
- Stocks, mutual funds, bonds
- Cryptocurrency
- Check savings account and certificates of deposit
- Retirement plan, end benefits, or retirement accounts (individual)
- Business partnership or shares
With that, keep yourself updated on your appraisals over assets. You can use online calculators to keep track of your assets’ worth. Once you’ve calculated your overall net worth and consequently your need for an estate plan, you can start looking for qualified estate planning attorneys.
3- Find a qualified estate planning attorney
An attorney will walk you through the choices you will need to make to create a good plan. But who should you hire? What are some qualifications to look for, and should you go beyond what you’ve read on paper?
An attorney should be able to help clear any of your doubts about proper state planning, especially if you have to deal with confusing estate or inheritance taxes. If you have a large number of assets that cannot be managed by you alone, using an attorney who will care for your next of kin and how to go about writing a fair and powerful will can help you feel at ease about your estate plans.
An estate attorney or a tax professional can also help understand the complex implications of your will, especially if you have a special child, business issues, or unfamiliar heirs. So it is best to have one by your side.
4- Draft an iron-clad power of attorney
A durable power of attorney will allow an agent or person to act on your behalf if you become unavailable. If you don’t have a power of attorney, the court can decide what happens to your assets, and it might not reflect what you would have wanted.
When you give your agent the right to act like you, they are bound to enter into legal and financial transactions and make other legal decisions. And transact real estate according to your wishes. Only you have the power to revoke it should you recover from some illness or whatever else that made you unable to participate in the legal proceedings. You can choose who you want to act as an agent, be it your spouse or someone close to you and more financially savvy than your partner.
5- Don’t forget your taxes
You can’t get away with having assets and not paying taxes for them. While you might be aware of the Federal Estate Tax, that is not the only one to be on the lookout for. Income in Respect of a Decedent or IRD is a tax on people who inherit certain money. If you die without paying taxes for your income, your estate and your beneficiaries will have to take care of that.
Some states have estate and inheritance taxes. Always consult with your tax professional about any taxes you might be unknowingly missing, so you have a complete estate plan with all tax scenarios.
6- Ensure there is a guardianship designation
In a scenario where you have minors/children and are considering their future, picking a guardian who will overlook your assets in case of death is incredibly important. Some wills incorporate this clause but be sure to ask your attorney about it.
Select someone trustworthy who shares your views and has the children’s best interests at heart. They should also be financially sound, so you don’t have to worry about money falling into the wrong hands. As a risk management strategy, have a backup guardian ready. You ensure your children’s safety and future by choosing people to care for them if you pass.
Conclusion
There are more ways than just the six mentioned above to help you draft a successful estate plan, like designating beneficiaries, documenting your wishes, etc. But these tips are bound to set you in the right direction and help you become more knowledgeable about estate planning. The benefits of an estate plan will be part of your legacy, so be sure to spend the right amount of time on creating one.
