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Estate Planning
Estate planning is not just for the wealthy. It is for anyone who owns anything of value and is interested in passing those assets onto heirs. Estate planning is also commonly regarded as "death planning" when in fact; it is so much more.
There are actually three separate components to an estate plan.
- The accumulation of assets.
- The preservation of those assets.
- The distribution of your assets to your heirs.
We will be focusing on the preservation and distribution components of the plan.
There are many advantages to having an effective estate plan:
- It helps you to provide for your spouse and other remaining family members, including minors, or anyone with special needs.
- It allows you to dictate "who gets what" and therefore, can help prevent family fights.
- It can help you avoid or reduce federal and state estate taxes, so more of your estate is passed on to your beneficiaries.
- It avoids delay in the distribution of your estate.
- It reduces the cost of administering your estate.
Avoid Estate Taxes
Protecting your wealth begins with protecting your estate from taxes. You need a plan that has strategies to minimize the potential ravaging effect of inheritance taxes. This can be done through the proper use of life insurance, gifting, charitable remainder trusts or irrevocable trusts. These are complicated issues and since everyone's situation is unique, remember to seek the advice of an estate attorney or professional tax advisor.
Even if your estate is too small to worry about estate taxes, currently defined as a one with less than a gross value of $675,000, you still need to understand the probate process and have an effective will to distribute your estate to your heirs.
Probate
Probate is simply the legal process for distributing an estate. In probate, your personal representative or administrator, with some level of supervision by a probate court, distributes the assets from your estate. Any property that is not jointly owned, owned by a trust or distributed by a beneficiary agreement becomes probate property. Probate costs vary by state and the size of the estate, but can be well worth it to have an equitable and thorough distribution of your assets.
Wills
A will is a basic estate-planning tool that gives legal instructions on how your assets are to be distributed to your heirs. It is also used to name your personal representative, who will be in charge of carrying out your instructions, and allows you to appoint guardians for your children. It is essential that you have a will. If you die without one ("dying in testate"), your property is given to your heirs according to state laws, regardless of your personal wishes. More importantly, your dependent children may receive court-appointed guardians.
There are many estate-planning tools that may be needed in addition to a will. This is the case if you have a number of beneficiaries or children from multiple marriages, if you have large sums of money or property, or property located in multiple states.
Trusts
Trusts are one example of an estate-planning tool that is used in addition to a will. A trust is an agreement between you and another person or institution that manages your assets. A trust may serve many purposes, including control and distribution, ongoing care for minor children or disabled dependents, and support of a former spouse. Trusts can be either revocable or irrevocable. These can be complicated issues, so be sure to get the advise of an attorney or tax advisor.
Insurance
Life insurance can be a critical component in estate planning. Many estates don't have the liquid assets needed to provide available cash to pay the bills and taxes that follow a death. The heirs of a business owner that doesn't have the right kind or amount of life insurance, may have to sell the business and lose a great deal of the value. There are many types of life insurance so be sure you consult a professional as part of your estate planning process.
Long term care insurance can also be a good tool for you to use to protect your wealth. This kind of insurance provides coverage for chronic and disabling illnesses that are not covered by Medicare. According to Successful Money Management Seminars, 43% of Americans over age 65 will spend some time in a long-term facility. In general, people with $150,000 to $500,000 in assets should consider this insurance.
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