Estate planning, the process of planning how to preserve your assets for your heirs, is not just for the very wealthy. Everyone should engage in some form of estate planning. After working hard for many years, building up a business, and accumulating assets, you should make sure that those assets will not be unnecessarily used up but are preserved for your survivors. Here's a basic guide to wills, trusts, and other estate planning tools.
An Overview:
What constitutes your "estate"? Essentially, it includes everything you own at the time of your death minus your debts. Occasionally, rules can apply which may bring back into your estate assets you've given away, or thought you'd given away.
Taxation considerations for your estate will vary depending on factors such as where you live and the total value of your estate. That's why it's so important for you to speak with your accountant to determine the most appropriate way for you to establish an estate plan that works for you.
Ø Last Will and Testaments
Ø Life insurance
Ø Trusts
Last Will and Testament
The will is the backbone of good estate planning therefore it is essential that you obtain competent legal help in drafting a will. A will that is poorly drafted or does not dot every legal "I" and cross every legal "t" can be the cause of endless trouble for your survivors. Many people believe they do not need a will yet we believe them to be one of the most important documents you will ever create.
We've listed 5 very important reasons, aside from saving on estate taxes, for ensuring you always have a valid and updated will.
Why A Will Is SO Important
1. To Choose Beneficiaries. Many succession laws will determine how your property will be distributed if you die without a valid will. These distributions may be contrary to what you want. In effect, by not having a will, you are allowing the state to choose your beneficiaries.
2. To Appoint a Guardian. A prepared will allows you to name the chosen guardian your minor children will be cared for by your in the event of your death and/or the death of your spouse.
3. To Name an Executor. Without a will, you cannot appoint someone you trust to carry out the administration of your estate. If you do not specifically name an executor in a will, a court will appoint someone to handle your estate, perhaps someone you would not have chosen.
4. To Minimize Taxes. A properly prepared will is necessary to implement estate-tax-reduction strategies. Your accountant can assist you and your attorney in the preparation of this will.
5. To Establish Permanent Legal Residence.
You may wish to firmly establish domicile (permanent legal residence) in a particular state or country for tax or other reasons. If you move frequently or own homes in more than one state, each state in which you reside could try to impose death or inheritance taxes at the time of death, possibly subjecting your estate to multiple probate proceedings. To lessen the risk of this, you should execute a will that clearly indicates your intended state of domicile.
You should review your will every two or three years, or whenever your circumstances change. A change that might necessitate a change to your estate plan might include:
· Divorce,
· Having a child,
· Having children move out of the house,
· Acquiring a large asset,
· Selling a large asset, or
· A change in the tax laws.
Trusts
A common misconception is that trusts are only suited for use by the very wealthy. That is just not the case today. People of a wide variety of income levels use them as estate planning tools. Trusts are complex and costly to set up and run, requiring a higher level of services from an attorney than wills. They are useful in accomplishing various estate planning and financial planning goals. Trusts can be used for many worthwhile purposes, some of which are listed below:
Ø Give property to children.
Ø Reduce estate taxes.
Ø Leave assets to a spouse.
Ø Provide for life insurance used to pay estate tax.
Your accountant, together with your attorney will be able to advise you if a Trust is a viable proposition for you.
Post-Mortem Letter
If you pass away, will anyone but you know where your tax records and supporting tax documents are located? How about your important documents such as deeds, titles, wills, insurance papers. Do these people know who your accountant/ your lawyer/ your broker is? By failing to leave your heirs this information, it will cause a lot of headaches and may also result in additional taxes and costs being incurred without the appropriate documentation.
Life Insurance
The main purpose of life insurance is to provide for the welfare of survivors. But life insurance can also serve as an estate planning tool. For example, it can be used to finance the payment of future estate taxes or to finance a buy-out of a deceased's interest in a business. It can also be used to pay funeral and final expenses and debts.
