Developing an estate plan gives you control over your assets during your life and after your death. With a smart estate plan, many people are able to provide a financial foundation not just for their children, but for generations to come.
Wills and Trusts
Both wills and trusts give you control over how your money will be dispersed after you die. If you don't have either of these, you are said to have died in intestacy, and your money and assets go into probate court. Probate is a long and costly process that ultimately has a judge determine, often arbitrarily, who gets what.
When you have a will, you are at least able to convey your wishes. Most smart estate plans include a will with a trust. A trust is actually a separate legal entity that holds your assets and survives you to disperse them according to the trust document. It requires a trustee and must be funded with the assets of your estate.
Funding a Trust
Many people take the time and spend a lot of money to develop a trust that gives very specific directions for the money and assets. Trusts can simply liquidate the money upon death or require beneficiaries to use the money for a home or college education. There may be a clause in the trust that only allows heirs to use so much of the money annually. A trust may provide information about who will care for minor children and name the guardians for them and provide assets to be used for their care.
While all of these directions are wonderful, many people unfortunately never fund the trust, then when they die, their assets are left in their name with no real plan. To fund a trust, you must move all assets in title under the name of the trust. This means stock portfolios, real estate and bank accounts. IRAs do not need to be moved into your trust.
Life Insurance and Taxes
When you die, your estate will pay out a lot of money. Probate costs as well as estate transfer taxes at both the state and federal level are some expenses. A smart estate plan looks at the costs that will result from passing the money on to heirs and considers meeting any needs your beneficiaries may have to continue a lifestyle, maintain the family home and keep the income reasonably the same. Life insurance is used to meet these needs.
Life insurance pays a benefit upon the death of the insured. Life insurance may be purchased in the amount it would take to pay off the mortgage or pay for college, taxes or other financial needs determined in your estate plan. Life insurance is paid to beneficiaries tax free as long as it is not paid into the trust, where it is added to the entire estate value and taxed as high as 55 percent. A good estate plan provides enough insurance to make sure assets are not eroded by costs and that your beneficiaries can live with financial security.
Estate Planning Guidelines
Estate planning refers to the decisions you make and legally document that allow for the disposition of your assets when you die....
How to Become an Estate Planner
An estate planner is a professional who helps plan individual and corporate estates, as defined as the collection of assets accumulated during...
Estate Planning Worksheets
In order to put together a good estate plan, it's important to have the appropriate worksheets and interviewing tools. Learn about estate...
How to Create an Estate Plan
If your net worth is more than $1 million (individual) or $2 million (couple), you need an estate plan - otherwise, your...
What Is Estate Planning?
Estate planning helps someone who is incapacitated help themselves by giving power to others to make health care and financial decisions according...
Is an IRA or a 401k Paid According to the Will?
Find out from an estate planning and probate lawyer how a will affects IRA and 401K monies in this free video on...
Elder Law vs. Estate Planning
Estate planning helps avoid probate, save estate taxes and provide for survivors, whereas elder law is about Medicaid planning. Learn the difference...
Retirement Planning vs. Estate Planning
Retirement planning aims to secure financial solvency during retirement, but estate planning aims to save estate taxes and rights in the case...
What Is Estate Management?
Estate planning involves determining how your assets will be distributed in the event of your death or physical or mental incapacitation. Without...
Estate Planning Tips
An important state planning tips is to have a court document, most likely a will, serves as a foundation piece for an...
What Does it Mean if a Bank Account Says POD?
What Does it Mean if a Bank Account Says POD?. Part of the series: Estate Planning. A bank account that says POD,...