The biggest estate planning mistake people make is to begin worrying estate planning concerns too late. It is never too soon to plan your finances, especially because people do not know the future. While financial planning is the key to maintaining wealth, not preparing in the matters of your own estate could mean that everything you worked for would end up in the wrong hands, or in the wrong proportions.
There is no excuse for bad estate planning. But there is plenty of opportunity to devise the ideal way to deal with your fortune in the event of your death. Knowing what your most pressing estate planning concerns should be is a good start to coming up with the right kind of action.
1. Death and Taxes
Yet the more mysterious of the two is the latter. Taxes can affect a person’s estate planning quite a bit, especially if your estate is large. Estate taxation should be your first and most pressing concern. The death tax comes into play when transferring your wealth after death, and it comes in the form of an inheritance tax and an estate tax:
The inheritance tax is for those who are inheriting your wealth. The estate tax is goes into effect upon your estate in the event of your death, and is calculated upon your gross estate (all your belongings and assets at fair market value, alongside any business interests as per a special valuation) reduced by certain fees, expenses and unpaid debts, to arrive at a taxable estate. This estate combines with taxable gifts exceeding the annual exclusion amount, which is the tax base.
The estate tax is considered one of the most complicated areas of taxation. It is highly recommended to contact a tax practitioner with experience in estate planning and estate taxation. Estate taxation is entirely avoidable if your estate is below a certain value. Contact a legal professional in the field of estate planning for more details and possibilities regarding potential tax exemption, and lower tax costs.
2. Yes Probate vs. No Probate
Beyond the initial cost of setting your wealth up for inheritance, there is also the fact that it costs money to even consider distributing that wealth in the first place. Probate is the process by which a special court decides whether your will is legitimate or not. It is also an opportunity for claims to be made against your will, and for these claims to be evaluated (and legally nullified).
However, probate carries certain costs with it. For one, the cost of a probate attorney. You do not want to tackle probate alone, unless you have legal expertise. Any unforeseen complications or claims could possibly endanger your right to an inheritance if you did not prepare.
Probate also takes time. It can take several months to a year for a court to decide. It depends on the size of the estate and the claims surrounding it. However, a lengthy probate process is not an inevitability.
3. Wills vs. Trusts
There are several ways to plan your estate, but the most common include the revocable living trust and the last will and testament. Together, they comprise the majority of people’s estate planning. They each have their advantages and disadvantages. Having a basic overview of both is essential to making the right call for your own estate planning concerns.
Last Will and Testament
A document detailing how you would like to distribute your property and assets. Intestate laws in your state dictate how to distribute your assets upon your death if there was no estate planning. A will acts as a document further clarifying how you want to distribute your property and assets.
Your will can determine who gets what, and it must be signed in the presence of several witnesses to help attest to the validity of the will in probate court. Upon your death, the will must be probated, and executed either by a court-appointed executor or someone you chose. A will cannot account for your funeral plans, life insurance policies, transferable/payable-upon-death accounts and properties, or anything in joint tenancy/joint ownership.
A more complicated and versatile document, with a host of advantages specifically for individuals with larger estates, more complicated financial situations or other requirements. A living trust goes into effect the moment you sign it, unlike a will.
Living trusts allow for the distribution of your assets and property upon disability rather than only upon death, and specifies the distribution of your assets. Which might include provisional distribution if you wish for your minor children to attain their inheritance bit by bit rather than all at once.
Most people with an interest in estate planning will choose a living trust rather than a will. They want to avoid probate and minimize the costs of setting up their family’s inheritance.
4. Death vs. Disability
While a living trust has the benefit of going into effect before you die, in the event of permanent disability, planning for it is about more than just making sure that your fortune is safe.
It is important to set up a durable power of attorney for both your health care and your finances. So if you are left incapacitated for the foreseeable future, someone needs to be in charge of your medical and financial decisions. If you have financial obligations, you should see to it that someone is managing your affairs for you. You must do the same for health care.
A living will is another vital estate planning tool, as it allows you to specify the medical procedures that doctors may and may not use to try and save your life. A living will takes the uncertainty out of tough medical decisions, such as life support and major surgery.
5. Online/DIY vs. Professional Attorney/Help
The final concern is how to go about setting up your estate planning in a responsible way. The answer is simple: seek professional assistance. The work of an experienced legal professional will always be superior to a will or trust set up through limited online resources and incomplete information.
An attorney specializing in inheritance will be able to advise you on the intricacies of your state’s laws and limitations, tax considerations, and any recommended course of action given your unique circumstances or financial needs.
The Bottom Line
Having estate planning concerns can be perplexing. Especially jointly-owned property, have a special needs child, or own a variety of different properties with various forms of ownership. In the end, seeking assistance from a qualified professional will save you more money and more time.