Many people believe they don’t need estate planning. Some believe â€“ erroneously â€“ that they don’t have an estate, while others think the value of whatever they do have is not sufficient enough to garner estate taxation, so what’s the point?
With few exceptions, everyone has an estate â€“Â Â even the young child with a custodial account in his name and the granddaughter who received a lovely piece of jewelry for her 16th birthday. Estate planning is your personal opportunity to make decisions concerning your assets, finances, and healthcare. Although some individuals narrowly view estate planning as a way to assign their assets to heirs, others see it as a way to perpetuate their legacies.
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Bottom line: If you own something of value that you would pass on to someone else upon your death, you have an estate. Whether you know it or not, you also have an estate plan. The state has one for you free of charge (well, sort of); if you don’t get around to writing a will or designing a plan of your own. Broadly speaking, an estate plan encompasses the accumulation, conservation, and distribution of an estate. A good plan will enhance and maintain the financial security of individuals and their families.
Estate planning basics
You need certain documents to meet your estate-planning goals, and a basic understanding of the way it all works.
- a will
- trusts as a complement to your will
- knowledge of how the estate tax system works
- current law and how it affects your assets
- gift tax on generosity
- applicable state death tax
Wills: The cornerstone of all estate plans
A will is a personal declaration of your intentions about the disposition of your property at death. Everybody should have one. Because a will does not become legally enforceable until your death, it may be changed at any time before the maker’s, or testator’s, death or mental incompetence. A properly drafted will contains instructions for your personal representative; the executor. The executor is responsible for administering your estate.
A will offers many advantages, enabling you to control, to a large extent, what happens after you’re gone.
With a will you can:
- Choose the executor
- Designate a guardian for minor children or others unable to fully care for themselves
- Distribute your property to beneficiaries you choose
- Be generous to a charity at death
- Minimize estate tax
- Get a sense of accomplishment and peace of mind
The last thing you want to do is die without a will. A person who dies without a will is considered “intestate.” Dying intestate can be unnecessarily costly for your heirs and leaves you with no specific say about who receives your assets, or in what proportion those assets will be distributed.Â Some assets, such as individual retirement accounts and life insurance proceeds, bypass a will entirely and go directly to the beneficiaries listed and filed with the financial firm that handles those products. Otherwise, the state decides who gets what. Each state has a prescribed order for the distribution of property of those who die with no will.
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