Estate planning is a broad term that encompasses assuring all of your affairs are in order should something happen to you. There are various planning mechanisms that can make up your estate plan.
The goal is to help ensure your assets are transferred per your wishes, your finances are managed if you become incapacitated, tax considerations are made, and your plan reduces stress on loved ones who will step in and manage your estate.
Avoiding the planning process could put the state in charge of dispersing your assets, create stress amongst family members, and draw out the timeline associated with managing your estate.
A thorough estate plan should answer the following key questions:
Who would handle my finances if I’m in the hospital for an extended period of time?
Do my loved ones know my preferences related to life-saving medical decisions?
Will my family have to pay a large sum in taxes when they receive an inheritance from me?
Who will receive my belongings, financial accounts, family heirlooms, and other assets when I pass away?
Does my plan reduce the stress and time associated with my estate?
Many factors go into determining exactly what legal steps you should take in forming your estate plan. Your current age, family dynamic, and value of your estate all come into plan. We’ve compiled 5 planning mechanisms to consider when estate planning:
Will
While you can create a will yourself, many choose to have a will prepared by an attorney. This reduces the likelihood of your will being challenged after you pass.
A will is most commonly used to communicate your wishes in regards to the care of your children and the dispersing of your personal belongings. Because a will is associated with a personal estate, it is subject to probate. A thorough and detailed will allows for decisions to be made that are inline with your personal wishes.
2. Trust
To take your planning a step further, consider a trust. A trust consists of a grantor, trustee, and beneficiary(ies). The grantor legally transfers ownership of their assets into the name of the trust. The trustee, in turn, manages the assets until they inevitably transfer to the beneficiary.
A grantor may wish to act as the trustee until they are unable. In this case, a successor trustee is appointed who takes over when the grantor is unable or passes away. A living trust is most common which goes into effect immediately and includes both living and death benefits.
A living trust can disperse assets while you’re still alive and fully manage your assets if you become incapacitated. While Delaware does not impose an estate tax, those in other states often use a trust to minimize taxes that would otherwise be assessed upon their passing. Using a trust also avoids the possibility of probate. A trust can not be contested, allowing for smooth transactions upon your passing.
3. Power of Attorney
A Power of Attorney (POA) is a legal document permitting another person to act on your behalf. General Power of Attorney provides a broad array of power and access. From medical decisions to financial and business matters, they can ultimately act just as you would in these various areas.
Later in life, whether you’re in a nursing home or struggle to make decisions for yourself — a Power of Attorney can help you look after your affairs. Keeping bills paid, selling property, and accessing your bank accounts are tasks your POA can do with ease.
Whether you become ill or are simply traveling far away from home, having a trusted individual who can transact on your behalf eases many stressful or unforeseen situations.
4. Healthcare Directives
Everyone is entitled to their own beliefs and feelings when it comes to end of life healthcare decisions. Unless your desires are in writing, you can’t be sure decisions will be made per your wishes. Completing your state's advance healthcare directives form is the best way to assure your wishes are properly communicated to healthcare staff in life and death scenarios.
Having a clear plan, in writing, also reduces stress on loved ones. Seeing a family member in distress is painful enough; taking the decision making burden off their shoulders can bring a sense of peace during a hard time.
5. Beneficiary Designations
Life insurance policies and financial accounts are primary places to start when looking into beneficiary designation. Many will list a spouse or child as their beneficiaries on their, IRAs, 401k, or life insurance policy. As life’s circumstances change, you may need to update your beneficiary. This is often the case for younger individuals who may have assigned a beneficiary before starting a family or somebody who has gone through a divorce.
Creating a Thorough Estate Plan
The goal of an estate plan is to reduce stress for your loved ones and to minimize taxes. When a clear plan is in place, you’re empowering your loved ones to make decisions that mirror your wishes.
Estate planning functions go hand in hand with the wealth advisory and retirement planning services offered at Integrated Wealth Management. Because there is no cookie-cutter plan that fits everyone's circumstances, reviewing your estate plan with a financial advisor is a great way to receive feedback that is in line with your personal and financial goals.
If it’s time to review your estate plan, connect with one of our advisors by scheduling a meeting today.
Continued Readings:
Health is Wealth (And Both Play a Part In How Happy You Are In Retirement)
The Three Phases of Retirement — Learn Where You Stand Today
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