One of the kindest things you can do for your loved ones is to make an estate plan. It will help ensure your family is taken care of the way you want and prevent them from going through unnecessary stress and expense during your absence.
A well-prepared Estate Plan can also minimize your tax burden and give you the peace of mind you deserve. To get started, make sure you know these five essentials!
Know Your Assets
Before you start drafting your estate plan, you must know what you have in the way of assets. These include the usual savings and checking accounts, retirement plans, insurance policies for cars, boats, art and collectibles, computer equipment, jewelry, furs, and more. A written inventory of your most valuable possessions is an excellent place to start. You might also want to consider payable-on-death (POD) or transfer-on-death (TOD) accounts that pay out upon death without going through probate.
You should also keep a running list of important documents and instructions to access them, including your identity cards, tax returns, insurance policies, investment portfolios, bank and credit card accounts, and other financial information. It will make it much easier for your executor to find what they need and ensure the proper distribution of your assets. The key to the “minimal” is to do your homework, get started early, and continually update your estate plan to ensure that your intentions are carried out. The best part is that you will be confident in your financial future no matter what happens to you.
Know Your Debts
Finding out what debts you have to pay is one of the first steps in creating your estate plan. It includes credit card debt, student loans, and personal loans. You also need to identify any other obligations that are unpaid, like mortgages or auto loans. Ultimately, you need to know your debts to ensure your beneficiaries get everything they expect to receive when you die.
Debts don’t just go away when you pass away; they might significantly decrease or even wipe out your estate. To ensure your heirs receive every dollar you meant for them to receive, it is vital to be aware of your debts before planning your estate in California.
You’ll want to make a list of all your debts, including the name of each creditor, the account numbers, and where you have signed agreements. It will help you track which debts need to be paid first and how much you owe.
Once you have your debts figured out, it’s time to prioritize them and plan to pay them off. It will help you avoid a financial crisis during probate and protect your heirs from future pain. An organized plan will make the process easier for you and your loved ones.
Know Your Beneficiaries
You’ll have to choose beneficiaries for many of your assets and accounts during the estate-planning process. These include retirement plans, life insurance policies, and bank accounts.
Your beneficiary designations may be crucial to your strategy, which specifies who will get the death benefit upon your passing. Because of this, it’s imperative to maintain them current.
Beneficiaries can change as you get older or your situation changes, so be sure to update your beneficiary information on all your accounts and documents regularly.
For example, if you’ve recently adopted a child or started divorce proceedings, consider changing your beneficiary to reflect that fact. Also, remember to name your children’s legal guardians as beneficiaries.
In addition, you’ll want to be careful when naming lifelong dependents, like a person with special needs or who receives government benefits. If the proceeds of your life insurance policy exceed the amount of those benefits, they’ll be taxable.
Maintaining current beneficiary designations and coordinating them with any other estate-planning papers you may have, such as a testament or a trust, are the best ways to avoid this. If you need help updating your beneficiaries, talk with an attorney.
Prioritize Your Beneficiaries
One of the essential steps in estate planning is deciding who you want to receive your assets when you die. It includes both physical possessions and financial accounts. Identifying the beneficiaries you wish to receive your estate’s property can help you minimize the amount of money that goes to taxes and other expenses while distributing your wealth more fairly to those who matter most to you.
The best way to prioritize your beneficiaries is to create a comprehensive estate plan and review it periodically. Begin by identifying your priorities — spending time with family, travel, philanthropy, and wealth transfer are common goals — and then translate these into specific goals you can pursue as you build up your assets.
Among the key objectives of an estate plan are to distribute your assets as you desire, minimize the impact of taxes, and avoid probate. Purchases that pass through probate may be subject to a higher estate tax.
Moving property into a trust is a simple way to minimize your estate’s tax exposure. At the same time, you are still alive, rather than leaving it to your beneficiaries after you die. Following your passing, the assets will be divided under trust conditions without going through probate.
When naming beneficiaries for your accounts, make sure to sync your beneficiary designations with your other estate planning documents, and be sure that you consider the needs of minor children and those who have special needs. Lastly, name contingent beneficiaries willing to act as backups should your primary beneficiary not survive you.
