Estate Planning 101…
1. Regardless of your net worth, it's important to have a basic estate plan in place.
Having an estate plan ensures that your family and finances are protected while you are alive and your financial goals are met after you die.
2. A basic estate plan consists of many different documents.
Including:
a.
A Last Will and Testament;
b.
A Durable Power of Attorney;
c.
A Health Care Proxy; and
d.
A Living Will.
3. Try to keep an inventory of your assets.
Your assets include your investments, retirement savings, insurance policies, and real estate or business interests. It’s important to think about: Whom do you want to inherit your assets? Whom do you want handling your financial affairs if you're ever incapacitated? Whom do you want making medical decisions for you if you become unable to make them for yourself?
4. Everybody needs a Last Will and Testament.
a.
A Last Will and Testament dictates where you want your assets distributed when you die;
b.
A Last Will and Testament is the best place to name a guardian for your minor children;
c.
Dying without a Last Will and Testament can be expensive for your heirs; and
d.
Even if you have a Trust in place, you still need a Last Will and Testament to control and distribute any assets you may own outside of the Trust.
5. Trusts aren't just for the wealthy.
Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.
6. Discussing your estate plans with your heirs may prevent disputes or confusion.
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you're gone.
7. The federal estate tax exemption -- the amount you may leave to heirs free of federal tax -- changes regularly.
The estate tax hit $3.5 million in 2009, but was phased out completely in 2010, but only for a year. The new tax in 2011 was reinstated at 5 million.
8. You may leave an unlimited amount of money to your spouse tax-free, but this isn't always the best tactic.
By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.
9. There are two easy ways to give gifts tax-free and reduce your estate.
You may give up to $13,000 a year to an individual (or $26,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.
10. There are ways to give charitable gifts that keep on giving.
If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.
