Five practical steps to critical estate planning
According to data from the National Association of Estate Planners and Councils, more than 120 million Americans do not have up-to-date plans to protect their families when an accident, illness or death occurs.
Jumpstarting the estate planning process may be the most meaningful gift you give your family so your loved ones are not left with uncertainty and conflict. These five steps can help you start the process and provide clarity to your family about your last wishes.
1. Create a will
If you die without a will, the court will decide what to do with assets, debts, and even your children. This is called dying intestate and leaves the distribution process in the hands of the state law in which you reside. To write a valid will, simply focus on stating exactly who you choose to inherit your property, and also write down who you want as guardian for your children in case something happens to the other parent as well. If proper planning is not completed, your family will be trapped in probate court, which is time consuming and expensive.
2. Consider a trust
If you want to avoid the probate process altogether, consider setting up a revocable trust. If you hold your assets in this way, you will essentially be transferring ownership of your property to a trust that includes exact details about the distribution when you die. Because the information is contained in one document, you can skip the sequence entirely.
3. Set up life insurance
Life insurance is a good idea, especially if you have small children, own a home, or likely owe a large amount of estate taxes after your death. You’ll need to make sure you have adequate coverage for your family to cover all your expenses when you’re no longer there to help. Consider purchasing term life insurance, which can be an affordable option as it pays a fixed premium for the life of the term.
4. Gather end-of-life documents
Beyond wills, trusts, and life insurance, critical estate planning should also include gathering three important end-of-life documents. To help your loved ones follow your wishes when you can’t, make sure they have these three documents:
– A power of attorney that allows your designated agent to manage your legal affairs and financial situation.
– A form that allows the release of information from your doctors to chosen representatives.
– An advance directive form naming someone to make medical decisions when you are incapacitated and a living will to spell out exactly what medical treatment you want when your life is about to end.
5. Learn about estate taxes
Although most estates will not owe taxes, if you have a taxable estate worth more than $5.43 million, it’s important to understand how much you’ll owe and how to strategically minimize that amount. For example, if you leave all assets to your spouse, that distribution will be tax-free.
Despite the critical nature of the estate planning process, starting the conversation can be difficult. By making it a priority to start these simple steps, you will have peace of mind knowing that you have done all you can to protect your family after your death.