Many retired people don’t look forward to estate planning, because they think it means the end of their lives. In reality, careful estate planning right now means you’ll have more time to enjoy yourself in the future. It doesn’t signal the end of your life, but the beginning of a new one.
What is Estate Planning?
“Estate planning” encompasses the settling of all your assets, financial accounts, investments, life insurance, and personal possessions. Everything you currently own needs to be accounted for, and you can never start too soon. Waiting until the last minute or until something bad happens, can mean losing control over what happens to your belongings and leaving your family to deal with complex legalities after you pass.
Planning ahead of time ensures there won’t be any difficulties after your death, and no need for the court to step in to solve complicated “mysteries,” such as who your beneficiaries are or who gets your most valuable possessions. This can amount to higher taxes, expensive court costs, and legal fees that could have been avoided.
Estate planning isn’t only about who gets your things – it also entails leaving behind instructions for your care if you become incapacitated, naming a guardian for your children if they’re minors, providing for your loved ones, naming a beneficiary on your life insurance policy, and coordinating transfers of family businesses or investments.
It’s important to plan your estate early in order to avoid a legal mess if you were to become disabled or die unexpectedly. You want full control over the things you’ve acquired and you want to avoid as many fees as possible. Estate planning is not something you only do once – you have to update your plans according to important changes in your life (such as a marriage, divorce, and death or birth of family members) and according to new laws.
The Differences Between Wills and Trusts
Your last will and testament is a document with a negative connotation – after all, it will be used only after your death, and is therefore a delicate subject to bring up while you’re still alive. Keeping up with your will is a necessary part of life, not just for seniors, but also for everyone. No one is guaranteed a long life and too many people don’t plan.
Matters such as inheritance, guardians for your children, and homes for your assets will be decided by the court according to state laws if something happens to you before you’ve written your will. If given the choice, wouldn’t you rather handle these matters yourself and live the rest of your life in peace knowing that everyone in your family will be well looked after?
A will states what you want to happen to your assets after you die, while a trust is an agreement that allows a third party to hold and distribute your assets according to what you want. Trusts can be arranged in different ways and can be either living or testamentary. A living trust is used to transfer your assets through a person you’ve designated to take over after your death. This person is your trustee and takes the place of court involvement. After you die, your trustee steps in, manages assets, and distributes them according to your wishes.
A will doesn’t become effective until you pass away, but a trust is immediately effective. In the event of you becoming incapacitated, the successor trustee can administer your assets as if you were able to administer them, yourself. Otherwise, your family will need to appoint a power of attorney, go to court, and struggle through legal battles after you die.
What You Need to Do
There are five basic steps involved in estate planning:
1: Make your will and trust.
Find a lawyer or professional retirement advisor to write up all of the necessary documents to assign who will inherit your property, money, investments, and other assets, as well as who will serve as guardians to your children if you have minors. You can also create your will online. You can never take care of this too soon, as the future of your family can be at risk in the event of a sudden death.
2: Document health care directives.
Taking the time to write out your healthcare wishes can ensure you’re cared for according to your religious values and personal desires, instead of being subjected to state laws or court decisions. In the event you become incapacitated during your lifetime, you will have control over how your care, resuscitation, and other medical procedures are handled. This will also save your family from having to make tough decisions about your future care.
3: Protect your assets.
This can come in the form of writing a will or designating a beneficiary to act as your trustee after you die. A trustee can protect and distribute your assets according to your exact wishes, instead of having to forfeit them to the laws of the state and the will of a court. This is especially important if you own a family business, expensive valuables, or high- worth assets such as vehicles or properties.
4: Cover expenses.
There are significant state taxes you need to be aware of in the event of your death. These include estate taxes, inheritance taxes, and even death taxes (imposed on the transfer of property due to your death). These taxes fluctuate depending on the total value of your property. Hiring a professional financial planner will allow you to estimate what your total taxes will be. You’ll also need to cover expenses such as your funeral or cremation costs, so your family won’t have to worry about it.
5: Safely store documents.
An easily avoided oversight made by too many people is failing to store the important documents you’ve had drawn up. Choosing a safe, protected place like a safety deposit box can ensure your documents don’t fall into the wrong hands or get lost. Your attorney or trustee will need access to your will, trusts, insurance policies, real estate deeds, and other important information like bank account or payment plan info.