Leaving your things in the right hands
Everyone has an estate. And everyone dies. But not everyone has a plan for their estate when they die. That's when things can get messy. By getting your estate in order now, you can help avoid potential problems at a time when family members are already dealing with the loss of a loved one.
Now what happens?
When you die, what happens to your assets? If you still have young children, who looks after them? Will estate taxes leave little for your heirs? Proper estate planning can help ensure these and other important issues are addressed before you die – so you don't leave behind a legacy of headaches. Contrary to many people's beliefs, estate planning is not only for the wealthy. It's for anyone with an estate. And that includes just about everyone.
An estate – simply stated
An estate is all the things you own at death – from your bank accounts, life insurance, and retirement plan assets to your house, furniture and jewelry. An estate plan communicates how you wish to distribute those things upon your death. An estate plan can also limit the impact of estate taxes on the assets you leave your heirs, while providing instructions for family and friends regarding your final arrangements.
Where there's a will, there's a way
Most people assume that their assets automatically get passed on to their spouse, children or other family members. Not necessarily. Without a will, all of your assets are transferred to your estate, and then probate court determines who gets your stuff. Do you really want someone else deciding how to allocate your things among family members?
A will provides a basic list of instructions that tells the courts exactly how you want your estate settled. If you die without a will, your estate will be left to the courts, which could tie up your assets for a long time and diminish your estate with taxes that might have been avoided. And, most important, your estate may not be distributed according to your wishes.
When planning your estate, in addition to deciding how to distribute your assets, a number of other important choices must be made, including:
Taxes – even in death!
Estate taxes can take a large chunk from the value of your estate upon your death. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 made significant changes to the estate tax landscape. Prior tax law changes gradually reduced and then abolished the federal estate tax for decedents dying in 2010. In the past, the estate tax had a maximum tax rate of 55% and $1 million tax free exclusion. The new bill imposes a maximum estate tax rate of 35% and a tax free amount of $5 million for decedents dying on or after January 1, 2011 and on or before December 31, 2012.
The bill also provides for "portability," which would allow a surviving spouse to elect to take advantage of the unused portion of the estate tax exclusion of his or her predeceased spouse, thereby providing the surviving spouse with a larger exclusion amount.
Final arrangements can become a topic of contention among family members if they don't know your personal wishes. Be sure to record your wishes regarding funeral, burial, or other arrangements in a document other than your will. Discuss your wishes with loved ones, if you can, and make sure someone knows where you recorded your preferences.
Also, be sure to have enough money available to cover the immediate costs of settling your estate. If properly structured, life insurance can provide your family with immediate access to money, since it does not pass through probate and is not subject to estate or income taxes.
Getting your estate in order
Estate planning is important if you want to settle your estate the way you see fit – and not leave it to someone else. By drafting a will, updating your beneficiaries, and talking to your family about your wishes, you'll be taking the first step towards getting your estate in order while helping your family avoid possible problems later.
This information is provided for informational purposes only. Consult with your tax and legal advisors regarding your individual situation. Seek the advice of a tax attorney or tax advisor prior to making a tax-related insurance or investment decision.
Provided for your educational use only by planwithease.com.