Your end-of-life planning should include estate plans. An estate plan is essential to your end-of-life plan. It can cause confusion and emotional stress for your loved ones. The estate planning process can be complicated, especially if there are many assets.
This guide to basic estate planning principles was created to make it easier. Here are ten ways to make an estate plan that works like a pro.
- Form a team
It is a priority for you to hire the best estate planning Waltham, MA, to assist with your estate planning. To create a customized estate plan for you, work with a tax professional, a financial advisor, and an estate planning attorney.
Every person has a crucial role and can offer valuable financial and legal advice. Working with a team can help maximize your beneficiaries’ inheritance and reduce the tax burden associated with an estate.
Your team and you will devise a plan to ensure that your assets are distributed to your chosen organizations.
- In your estate planning documents, outline your wishes.
Your estate plan should outline your wishes for your assets and dependents. If you do not have an estate plan, the probate court may make these decisions for your family.
The following documents can be included in your end-of-life strategy to reduce the chance that your assets will go to probate.
- Advanced healthcare directive: Also known by the term “Advance Directive,” an advanced directive guides medical treatment and healthcare services. A healthcare power of attorney and a living will are two common components of an advance directive.
- A living will, also known as a medical directive, outlines what medical treatment you want and don’t want. A healthcare proxy (also called a medical power of attorney or healthcare proxy) gives an individual the authority to make healthcare decisions if you are unable to do so.
- Durable financial powers of attorney: A POA (durable financial power) allows an individual or organization to make financial decisions on your behalf and in your name if you cannot do so.
- Testament: This legal document outlines your wishes regarding your possessions and dependents after death. You can also name your beneficiaries and designate guardians for minor kids. Also, identify an executor. This person will carry out your wishes as stated in your will.
Pro tip: Make sure to distinguish between will preparation and an estate plan. While a will is an essential part of your estate plan and should be respected, an estate plan can provide a more comprehensive strategy for your assets and loved ones after your death.
- Set up guardianship for dependents
Next, consider who would care for your dependents after you die. These could include minor children, loved ones with special needs, or aging parents.
Name a guardian to care for your dependents. A judge could appoint guardians in your absence.
Before you name a guardian for your child, it is important to talk to them in advance to obtain their consent. You don’t need them to manage your child’s inheritance. You can designate a third party, such as a trustee, to oversee assets or money until your child can manage their inheritance.
Consider another thing: Naming co-guardians for a couple could prove difficult if they divorce. Discuss this with your estate attorney. Consider naming a backup guardian to your dependents if your primary choice isn’t available.
- Trusts are worth considering.
A trust is a legal instrument that holds money for your heirs. You decide what you want to put in a trust and who gets it.
A properly structured trust ensures that your plan is implemented exactly as you intended. A trust can protect your estate against probate, where a judge will decide on asset transfer and distribution.
It is important to consult an attorney experienced in trusts and estate planning to ensure you have the right trust and that it is structured according to your wishes.
The following are some of the most popular types of trusts:
- Revocable trusts: You can modify or terminate the trust at any time before your death. Your irrevocable trust becomes unalterable after your death.
- Irrevocable Trusts: An irrevocable trust cannot be modified or terminated once you have created it. Although an irrevocable trust is not as flexible as a revocable trust, it provides additional protection against lawsuits and creditors.
- Charitable trusts: A charity trust allows you to donate money or assets to a charitable organization. The assets included in a charitable trust do not become your personal property. They can be passed to beneficiaries without being subject to taxes or litigations.
- You can plan for federal or state estate taxes.
Federal taxes on assets such as cash, stocks, and other valuable items are called estate taxes. In general, your beneficiaries pay estate taxes after they have received their inheritance. They are due within nine months of your dying.
If a large portion of your estate isn’t in cash, this could be a problem. This could mean you have to sell stocks or a house where you want to leave an heir.
There are some preventative steps you can take to avoid estate taxes. Talk to a tax professional to discuss your situation and determine the best estate tax planning strategies.
- Avoid Probate
Probate refers to the legal process by which your will is confirmed through the courts. Probate can be expensive, slow, and very public, as all probate cases are public records. A probate judge could make decisions you don’t agree with, even if your estate plan doesn’t include them.
You can stop your estate from going through probate. You can lower the probability of probate by writing and maintaining a Will, designating an executor for your estate, and setting up a trustee to manage assets within a trust.
Talk to your attorney about probate laws and create a plan for protecting your loved ones from public court proceedings.
- Preparation for long-term care
Talk to your financial advisor about how you can prepare for long-term care. Long-term care insurance is a type that protects your assets and helps you pay for the care.
Discuss your options with your doctor and create several plans in the event of a health emergency.
- Take into account the Income concerning a Decedent (IRD).
Federal Estate Tax is one of many taxes you should be aware of. Income in Respect of Decedent is a lesser-known tax that affects people who inherit certain kinds of money. If you die with Income that has not been taxed, your estate and your beneficiaries will be responsible for income taxes.
These are examples of IRD-taxable Income:
- Bond income from savings
- Individual retirement account payouts
- Sales commissions
- You would have earned other types of Income if you had lived
Talk to your tax professional to ensure a comprehensive estate plan that addresses all tax situations.
- Keep your beneficiaries current.
You will have the chance to name your beneficiaries during the estate planning and will preparation process. You need to be aware of major loopholes. Any money in accounts with named beneficiaries will be paid to these individuals, regardless of what your estate plan states.
These accounts can include, but are not limited to:
- Retirement plans (401ks, IRAs)
- Policies for life insurance
- Bank accounts
- Transfer-on-death and payable-on-death accounts
To avoid conflicts, ensure that your beneficiary designations are aligned with the estate plan.
- Digital assets are important!
You’ve probably thought about your money and physical possessions during estate planning. But remember your digital assets.
You likely have important documents and photos stored in social media accounts or digital file storage services. Your accounts may also be password protected and inaccessible to others.
Service providers often won’t reveal the passwords of a deceased person, and few laws can help. Designating a “digital fiduciary” in your estate plan will help to reduce the chance of loved ones losing access to precious memories and important documents.
This person will be granted access to digital information, including passwords and login names. You can also consult an attorney to close your online presence if you wish.
An estate planning checklist removes the stress of planning for your end of life.
It can be overwhelming and stressful to plan for your end of life. When you stop and think about it, your will helps to protect your loved ones financially, mentally, and emotionally.
Instead of putting off estate planning, you can use the checklist below to plan for each step. To make the process easier, we’ve combined our ten tips in an easy-to-follow format.