Estate planning can be one of the overlooked areas of financial planning. In my opinion, everybody needs an estate plan, and it needs to be reviewed periodically. In this article, I am going to discuss the basics of estate planning.
Estate planning refers to the process of accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives.
The goals of estate planning are the effective and efficient transfers of assets. An effective transfer means that assets are transferred to the desired party. An efficient transfer means that transfer costs are reduced.
The common goals and objectives of estate planning may include:
- Fulfilling property transfer wishes
- Reducing transfer taxes
- Reducing transfer costs such gift taxes, estate taxes, probate, and cost of documents
- Improving net assets to heirs
- Providing liquidity
- Fulfilling healthcare decisions
Failing to plan an estate can lead to property transfer wishes not being fulfilled, excessive transfer taxes and costs, family not being provided for financially, and insufficient liquidity to cover debts, taxes, and costs of death.
There are seven basic steps of the estate planning process that we work with our clients and their attorneys to implement:
1) Understanding the individual’s circumstances
2) Identify and select goals
3) Analyze current path and any potential alternatives
4) Develop comprehensive plan of transfers consistent with all information and objectives
5) Present recommendations
6) Implement the estate plan
7) Review the estate plan periodically and update the plan when necessary.
The basic documents that are used in an estate plan include:
- Will: A legal document that provides the will maker the opportunity to control the distribution of their property at death.
- Beneficiary: Person or entity designated to receive the benefits of someone else’s property such as retirement accounts, a house, or insurance proceeds.
- Trust: A structure that vests legal title to assets in one party, the trustee, who manages those assets for the benefit of the beneficiaries of the trust.
- Side letters of instruction: Details testator’s wishes regarding the disposition of specific tangible possessions, funeral costs, and wishes.
- Power of Attorney: A legal document that authorizes a trusted person to act on someone’s behalf.
- Healthcare directive: Appoints someone to make healthcare decisions for someone else in the case of them being unable to make those decisions for themselves.
I believe everyone needs an estate plan. This is a very high-level explanation of the basics but there are many more considerations, topics, and items to consider when developing your estate plan. I like to work directly with my client’s and their attorneys when creating their estate plans and recommend including all professionals when creating yours.
Together, we can work to keep you on-track towards your financial goals.
Request a consultation with me to learn more.
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