What Is Estate Planning?

It’s just what it sounds like: a process, in which you decide what to do with all aspects of your estate. The plan is a set of instructions for others to know what to do with your assets when you die (or become incapacitated). The idea of quantifying and delegating everything of monetary value in your life can be overwhelming, but there are only four steps:

Take Inventory

Any property held in your name or in your living trust, as well as portions of any properties you hold jointly with others, is part of your “estate.” In addition to cars you own, homes you bought and all the items in them, your accounts and policies will also pass on or pay out to others when you are gone.

This will include any life insurance or retirement plans (like IRAs and pensions), or annuities. Even if you already have policies like these in place, you’ll want to collectively review who you’ve assigned as a beneficiary for each one. Once you have a sense of all your assets and liabilities, you’ll be in a great position to discuss next steps with experts in estate planning.

Consult Trusted Experts

Experts in estate planning can help you create a big picture of what will happen to your wealth when you are no longer here. An estate planning attorney will work with you to design key documents, including your will, which describes your wishes regarding asset distribution. In certain cases, your attorney may suggest making a trust, which gives someone else the right to hold title to your assets or property.

A financial advisor, on the other hand, will be able to manage the investments and retirement plans that grow your wealth, as well as the insurance policies that protect you and your loved ones from financial devastation when you die, or if you should require long-term care.

Both of these experts, as well as CPAs, can help you determine whether your plan is foundational, or more advanced. At minimum, most estate plans include endowments, property ownership, disability protections, chosen executors for financial and health decisions, and careful records of all your posthumous wishes.

Put A Plan In Action

Once all aspects of your estate have been accounted for and everything feels right to you, you’ll review your beneficiaries, account titles and insurance coverages collectively. Then, you’ll sign all legal documents. Attorneys, financial advisors and CPAs who handle these matters for you now ought to be people you’ll want on the job in the years to come.

Regularly Review Your Plan

Once you have an estate plan in place, it will still shift as much as your life does. Moving, grandchildren, death of a beneficiary, divorce, or changes to your income, business or asset portfolio could all affect your vision for the future. Even tax laws can change, affecting how you would want your money to be distributed. It’s important that whichever experts you work with, you trust them to help you through all that might happen.

Options For Incapacity

Perhaps the most uncomfortable case to be prepared for is one in which you can no longer manage your own affairs. But trusted experts can help you arrange to have some powerful tools ready. A lawyer can help you create a general durable power of attorney (GDPOA), a health care proxy or a living will. The power of attorney is a state-based legal document that assigns someone you’ve chosen to handle your finances. You can appoint the same or another person to handle your medical information and decisions with a health care proxy. A living will, also state-based, provides instructions to withhold resuscitation in conditions where you would be unable to share your wishes with others yourself.

A financial advisor can help you pick the right kind of disability income insurance. Disability benefits often come as a rider (such as an accelerated benefit rider, or ABR) with your life insurance plan, but they can also be attained as a separate—sometimes tax-free—policy. These benefits ensure that the financial burden of incapacity won’t derail all your other plans for your estate.

Reducing Estate Taxes

Gift and estate taxes can put a damper on your plans for your surviving wealth. The current federal estate tax rate is 40%, and state laws allow for additional taxes to be assessed. This is a daunting figure, but there is a “lifetime exclusion amount” that can be passed on to your beneficiaries free of charge. Because of the unlimited marital deduction and a provision called “portability,” surviving spouses can also be exempt from these taxes within their own lifetimes. Your spouse can take advantage of the provision by electing portability on your post-mortem estate tax return within nine months of your passing, but your own exclusion amounts will only be passed on if your spouse does not remarry.

Within your lifetime, there is also an “annual exclusion amount” for gifts up to $16,000, and there is no limit to how many beneficiaries you can give this amount each year, tax-free. If your spouse does a “gift split” with you, you can double this figure. If you make your gift to a trust, you can designate the trust to multiple beneficiaries with multiple annual exclusions, or even purchase life insurance inside the trust, removing the entire death benefit from your taxable estate. The lawyers, CPAs and financial advisors you count on all can guide your family through challenging processes like these.

Read more related articles here:

5 steps to create an estate plan

Estate Planning: 16 Things to Do Before You Die

Also, read one of our previous Blogs at:

Why Estate Planning Is Crucial When Reaching End Of Life