Drafting a will and estate plan is vital to ensuring the future security of your assets. Having a plan in place before a catastrophe occurs will allow your family to grieve properly, rather than being in the position of having to settle financial disputes in court. Protecting your interests requires thoughtful consideration. Here we will examine the basic of wills and estate planning.
Why Draft A Will?
The transfer of any possessions left by the deceased becomes complicated without a legal document that clearly states the deceased's wishes. This scenario can also place tax burdens on the immediate family. Drafting a will means formulating a clear action plan in the event of an untimely death. Having a plan in place eases the burden on the family of the deceased, as well as close friends and relatives.
What's In A Will?
A will should describe the extent of the estate. It also names individuals and outlines the specific property that each is to inherit. The will may contain special instructions the draftee may have for family members or legal counsel in the event of his or her passing. The size of the estate and the unique wishes of the draftee will dictate the appropriate length of the document. Some wills cover the important details in a single page while others require a more lengthy draft.
The will should also contain details about organ or body donation wishes and the draftee can specify whether he or she would prefer to be buried in a cemetery or have the body cremated and ashes scattered at a particular location. The will is also the place to outline a succession plan for any business of which the draftee is the sole owner. If the draftee is a part owner of a business, it's important to set forth any terms of a buyout agreement within the language of the will.
Will Vs. Living Will
A will is a means of communicating an individual's financial wishes when he or she passes on. A living will serves to express an individual's healthcare preferences while still alive. A living will goes into effect if the individual suffers a traumatic injury and is unable to communicate treatment preferences while incapacitated. The individual drafting a living will should also designate a power of attorney to make end-of-life medical, and financial, decisions on the individual's behalf.
Who Do You Trust?
Holding property in a living trust is another important consideration in estate planning. Without a living trust, any remaining survivors will be forced into probate court, which can be both time consuming and expensive. A trust can be created one of two ways: by direct mandate of the legal property owner while he or she is still alive or through the instructions outlined in the will of the deceased property owner.
When forming a trust the individual should name a beneficiary for bank accounts and retirement plans. Naming a beneficiary makes accounts and plans automatically payable upon the event of the account or plan holder's death. Designating a beneficiary for stocks, bonds, and brokerage accounts also eliminates the need for the probate process. Setting funds aside in an account specified for funeral expenses is also recommended.
Revocable Living Trusts
A revocable living trust should be added to your estate plan for several reasons. Using a revocable living trust to prepare for mental disability requires designating a disability trustee to manage assets, rather than a court appointed caretaker. A revocable living trust can also help to ensure privacy of property and entitled beneficiaries after your death.
The individual can amend specific provisions in a revocable trust at any time and the entire agreement is revocable if deemed undesirable. Revocable trusts allow for the maximum degree of flexibility, but they also come with downsides. Assets funded into the trust are still considered personal assets for estate tax and creditor purposes, which means zero creditor protection in the event of a lawsuit. All trust assets are considered for Medicaid planning purposes and are subject to state and federal estate taxes, as well as state inheritance taxes, at the time of the trust holder's death.
Most estates will not owe federal estate taxes in the event of the estate holder's death. According to the Internal Revenue Service, federal estate taxes are only imposed if taxable assets total more than $5.43 million for deaths in the year 2015. This exemption amount is subject to yearly change. Married couples can transfer twice the exempt amount tax-free, and assets left to a tax-exempt charity, or spouse, are exempt from estate taxes. The latter is only true if the spouse is a legal U.S. citizen. Each state sets its' laws regarding estate taxes, but only a handful collect a state estate tax.
Life insurance is another essential consideration in estate planning. Life insurance becomes increasingly important once you own a house or if you anticipate owing substantial debts or estate tax in the event of your unexpected death. If ensuring the security of young children is a factor, life insurance reduces the likelihood of their future financial status becoming compromised by an unforeseeable tragedy.
Preparing Necessary Documents
Setting the proper legal groundwork for your estate requires an attorney's assistance. In the event of your untimely death, it's imperative that the executor of your has access to all sensitive documents related to your finances and insurance. This includes your will, trusts, insurance policies, real estate deeds, and certificates for stocks, bonds, and annuities. It is also recommended to organize all documents containing information on bank accounts, mutual funds, safe deposit boxes, retirement plans, 401(k) accounts, IRAs, credit debts, mortgages, loans, utilities, unpaid taxes, and funeral prepayment plans.
Estate Planning Building Blocks
There are many details involved in wills and estate planning. Building a successful estate plan begins with settling on the instructions of your will, the type of trust you want in place, researching federal and state estate tax regulations and life insurance options, and preparing relevant financial documents. These blocks are the framework upon which you will create a thorough plan for posthumous handling of your assets.