It is assumed that estate planning is only for millionaires and elders. The reality is that estate planning is for every person who has even a little bit of wealth and a family. Estate planning protects your assets after your death and during your life. The main purpose of estate planning is to ensure that your money and assets are going into the right hands. Nobody likes to think about death, but life is very uncertain. If someone dies without drafting an estate plan, his hard-earned assets will be eaten away by taxes or given to the wrong person. If you are drafting an estate plan, go through the tips below to avoid mistakes.
List Your Assets
Many people often think they don’t have enough assets to make an estate plan. But once you start looking out, you will find more assets than you expected. The holdings that can be transferred to heirs are:
- Homes, lands, and real estate investment
- Cars, motorbikes, and boats
- Cash in bank, stocks, bonds, and jewelry
- Collection of art, antiques
After you list your possessions:
- Calculate their values to estimate your assets’ worth.
- Check out the price of your home, land, and jewelry.
- Figure out the cash you have in stocks, investments, or in the bank.
After itemizing your inventory, you must contact professionals in the field to take further steps. Seek advice from a financial advisor, tax professional, and estate planning attorney. They are experts in optimizing estate plans for everyone. They will help you draft an estate plan for each asset and investment you own. In addition, these professionals will also make sure that any further investment you make will be automatically amended in your estate plan.
Document Your Will
That’s a basic and easiest step of estate planning, but it’s often neglected. According to a survey, only 42% of Americans currently have documented will. The documents state how your assets will be distributed after your death. The court does not accept will that is not documented. In that case, the court will decide who will acquire your hard-earned money. No one wants this to happen. So, don’t take this step lightly and draft your will with full scrutiny. Verify that document is spelled the same as your will to avoid complications.
Set up a Trust
Setting up a trust protects your assets after your death and when you are alive as well. It is like a container designed to hold money for your heirs. If you think your heirs are not wise enough to handle your assets, consider a trustee to handle your assets. Setting up a trust gives you a lot of benefits:
- When you are alive but cannot manage your assets, the trustee can take over.
- Trust avoid the probate process and gives you tax benefits.
- The trustee will prevent your assets from getting misused by your heirs.
Reduce Estate Taxes
It is not wise to pay estate taxes even after you die. Don’t worry; it is the aim of estate planning to minimize taxes on inherited assets. The easiest way is to set up a trust, as mentioned above. You can also reduce estate taxes by giving gifts to your family members. The good thing is that very few people have to deal with this problem. You don’t have to pay any tax if your assets are worth less than $12 million.
Switch to Roth Accounts
Don’t forget to convert your traditional IRA accounts to Roth accounts. Otherwise, your heirs will be required to pay higher taxes. Converting from a retirement account to a Roth account gives a lot of benefits to your heirs. They can make tax-free withdrawals from Roth accounts. In addition, heirs can stretch the withdrawal time limit over life instead of just ten years.
Discuss and Educate Your Heirs
This step can either make or break your estate plan. Not discussing the estate plan with your family causes a lot of problems. It might be uncomfortable for your family to discuss these matters, but you have to do it. If you don’t discuss it, they will not be prepared for the upcoming circumstances.
In addition, educate your heirs on how to manage those assets. It might be difficult for them to handle sudden wealth. They might fall prey to scams and bad investments and ruin their wealth. But if you properly educate and train them, they can easily handle the situation. They will also learn about your point of view and business philosophy.
Avoid Family Conflicts
An effective estate plan aims to give your family a happy and prosperous life. Imagine your children fighting with each other for your wealth after your death. That’s why discussing the estate plan is very important. Make sure that they agree with your estate plan to avoid conflicts. Do not impose your decisions alone and amend your plan according to their wishes. This is the best course of action you can take while charting an estate plan.
Make it Flexible
It would be best to revisit your estate plan whenever your circumstances change. Even if it doesn’t happen, you must look at it because sometimes laws have changed. Make necessary amendments to your estate plan according to the need of the hour to avoid any conflict.
Making an estate plan is an important task, but it’s not that easy. You can make it easier by recognizing the most common mistake and taking measures to avoid them. Read and understand the tips given to make your estate plan successful. Make sure to do it on time because life is uncertain. Draw your will to secure your assets and your family’s future. Take guidance from the estate planners to avoid complications. Additionally, always discuss your estate plan with your potential heirs to avoid conflict after you die. Lastly, amend the estate plan if needed.
Hope this article encourages you to make an estate plan to secure your property.