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If you need help, please feel free to contact us either by filling the form on the contact page or calling us.
Call : (1)2345-2345-54
Your estate is the collection of everything you own — money, property, and other personal belongings. No matter how much you own, those things will need to go somewhere after you pass away. That’s where estate planning comes in.
Estate planning allows you to prepare for what happens to your estate when you pass away. Many people feel that an estate plan is only for rich people, but that isn’t the case. If you own anything of value or if you have dependents who need to be cared for if you were to pass unexpectedly, you should have a plan.
Importantly, an estate plan also describes the kind of care you want should you become incapacitated (unable to care for yourself), and who will handle your affairs if you can’t. This is an important thing to plan for no matter how much money you have.
An estate plan is a collection of legal documents that lays out your intentions and expectations for two general situations:
Your estate is the collection of everything you own. That includes cash, investments, real estate, business interests, and any other personal property. When you pass away, all of those assets need to go somewhere. An estate plan lays out who gets what.
Just as importantly, an estate plan explains what you want loved ones and caretakers to do if you become incapacitated and can no longer take care of yourself. That covers health care, long-term care, who will manage your finances, and who will look after your children if necessary.
Unsure why it’s necessary to plan for becoming incapacitated? Consider that according to the U.S. Centers for Disease Control and Prevention (CDC), two in five Americans age 65 and older live with a disability, which can affect their day-to-day lives. More than half of Americans aged 65 and older also suffer from Alzheimer’s or a related form of dementia. Even if this never affects you, it’s better to be prepared.
Everyone should have an estate plan. If you own anything of value, you will need a plan for how to pass it on. The thing often overlooked is that a plan can make life a lot easier for your loved ones, who won’t want to be thinking about financial and legal matters as they grieve and handle your funeral arrangements.
To help drive home the point that everyone should have an estate plan, let’s dispel some common myths that exist around estate planning.
Even someone who’s 30 will probably have multiple bank accounts, a retirement account, debts, and personal property that needs to go somewhere should they die. It’s frightening to think about your own death, but life is unpredictable and it’s a lot easier for your loved ones if you create a plan before you die.
In some cases, you can also save money by creating your plan now. For one, a life insurance policy will be significantly cheaper when you’re young and healthy than when you’re in your 50s or 60s. You can clearly see that in this breakdown of life insurance costs.
Even if you’re married, you and your spouse should each have a plan. An estate plan will prevent people from contesting ownership of your things and then potentially dragging out the disbursement of assets for months or more. There are also unique situations: what if your spouse dies before you or soon after you? Things could get messy if neither of you has a written plan.
At the very least, a clear plan will reduce the number of decisions your spouse and loved ones have to make while they’re grieving.
While we like to think that our family and friends will follow our wishes after we pass away, it’s hard to guarantee that without a legal document instructing them on what to do. Unfortunately, people may act unexpectedly when a larger inheritance is a possibility. There are also seemingly small things you may not even consider but that could lead to disagreements, like who will get that box of old pictures in your closet.
It’s vital that you keep your plan and all documents current. If you divorce, do you still want everything to go to your ex-spouse? What happens if one of your beneficiaries dies before you do?
Regularly check your list of beneficiaries and make sure that all your documents still reflect your current wishes.
It’s easier to understand the estate-planning process if you know what happens to your estate when you pass away.
Everything you own at the time of your death becomes your estate. Then, the estate goes through the probate process, where a probate court decides what happens to your assets.
If you had a will, the court uses the will as their guide. If you didn’t have a will or if it was invalid for some reason, you are considered to have died intestate and the court uses local intestacy laws to decide who inherits your assets.
Probate is the process of verifying that your will is legal and that your final wishes are carried out. A will does not help your estate avoid probate. It simply makes the process smoother because the court can use it as a guide to what you wanted.
More about probate: Learn how much probate costs and how long probate takes.
For most small estates, probate is a pretty simple process that can be completed relatively quickly. However, things may slow down if someone contests your will, which means they challenge what’s in it. Perhaps they feel they were wrongfully excluded or that they deserve something other than what the will says they’ll receive. Contesting a will can drag out the probate process for months and potentially cost a lot in lawyer or court fees.
If you don’t have a will, your estate still goes through a probate court. The difference is that a judge will appoint someone to handle disbursing your assets. But the cost of a will can be affordable.
Ideally, you have created a will that names someone as your executor. The executor of your estate, also called a personal representative, manages your estate through the probate process. They handle tax bills, debts you hadn’t paid off, and other matters affecting your estate. The executor also oversees the disbursement of your assets to beneficiaries.
Most people nominate their spouse or child of legal age as an executor, but you can choose anyone. However, the person you nominate is allowed to decline, so make sure to choose a contingent executor or two.
If you don’t name an executor before you die, the probate judge will choose an administrator.
Your executor handles all tax bills for your estate. The money comes out of the estate, normally from your bank accounts. If necessary, the executor may need to (and has the right to) liquidate assets to pay off certain debts.
Your executor will file an income tax return for you and for your estate if it earns income, such as a rental property might. The executor will also handle any property taxes.
Very wealthy estates also need to think about estate tax.
Estate tax applies to your estate before anything is distributed to your heirs, but it only affects wealthy estates.
As of 2023 the first $12.92 million of your estate is exempt at the federal level. You only pay tax if your taxable estate is worth more than the current exemption, and so very few people actually pay federal estate tax. (Any assets passed to a surviving spouse are also exempt.) If your estate is worth that much, your executor is responsible for determining your taxable estate, filing the proper forms, and paying the tax bill.
There is also an estate tax in 12 states and the District of Columbia:
Some states have lower exemptions so you may need to pay a tax to the state even if you don’t have to pay federally. However, you still don’t need to worry about the tax in any of those places unless your estate is worth at least $1 million when you die.
Inheritance tax applies to the people receiving assets (not the estate itself) and the tax depends on how much they inherit.
The following six states have an inheritance tax:
States also exempt or apply lower rates to certain relatives. A surviving spouse is exempt from paying inheritance tax and sometimes the deceased person’s children are, too. Less direct relatives, like cousins, and unrelated individuals usually pay the highest rates.
Most states use common law, which means that whichever spouse bought or has their name on the title of an asset is the owner. A handful of states have community property laws, which dictate that any asset a married person gets while they’re married is owned equally, 50/50, by their spouse.
If you live in one of the community property states, your spouse may be entitled to receive your community property after your death. This can make it difficult to pass on assets to other heirs. A well-written will may allow you to bequeath assets to others, but state laws vary. You should talk to an estate planning attorney if you live in one of these states, to learn what your options are.
The best way to start estate planning is to take an inventory of all your assets. Identifying these up front can save a lot of time in the future, especially if you’re working with an attorney or working on a joint plan with your spouse. Keep your list in a place where you can easily reference and update it.
Make sure to include
Having an asset inventory can also help you in other situations, like when you apply for homeowners insurance and need to know how much coverage to get.
One thing you may not need to include? Any payable-on-death accounts (POD accounts) you have. Also called transfer-on-death accounts (TOD accounts), the funds in these accounts pay out to a named beneficiary, bypassing probate.
Once you have a record of all your things, you can start to create an estate plan. Consider who you want to pass things on to. These are your beneficiaries. Also, think about who you would bequeath things to if something happened to your primary beneficiary choices. (These alternative choices are known as your secondary or contingent beneficiaries.)
How you actually create your plan depends on your situation.
One benefit of working with a professional is that they have experience planning estates and know how to create a plan even if you aren’t sure what you want to do. And even though an attorney will cost more, it can save your loved ones from the cost of an expensive probate trial should someone contest your will.
You can find more guidance on how to actually create an estate plan later on.
Your individual situation determines how exactly this step looks. For some people, you won’t have to do much right now. You will sign some documents, put them somewhere safe, and then notify everyone involved in the plan that you have actually signed the documents.
At the same time, you may have quite a bit to do once your plan becomes official. Maybe you’ll need to change the names on some titles, sell a property, or begin regularly gifting money and assets to your beneficiaries.
It’s important that you keep your estate plan up to date and that you continue following your plan. This is especially true if you create your plan while you’re young or if you experience a major change in life, like a divorce or the birth of a child. In some cases, a beneficiary may pass away before you.
Even if there are no major changes in your life, you have to remember to stick to your plan. If your plan calls for joint titling with your spouse and you buy a new car, you will need to make sure to put your spouse’s name on the title. A great estate plan can be derailed if you don’t do your part to follow it.
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