Estate planning may not be something that you do for fun in your spare time, but it is still vitally important to your future and your family’s wellbeing. Many people think estate planning is only needed if you have an actual estate—a large home sitting on acres of land that has been passed down through the generations. But that’s not true at all. Your estate consists of everything in your name, from your car and home to furniture and financial accounts.
Estate planning is the process of arranging the management of your estate during your life and after your death, particularly in order to distribute your assets as desired and minimize the taxes accrued. When estate planning is done right, it guarantees that your children, grandchildren, and spouse will not have to make sacrifices or suffer financially after your death. These three tips will help guide your estate planning to be as efficient and reliable as possible.
Review Beneficiary Designations and Asset Titles
This is a frequent pitfall that most people don’t know they even need to avoid. Even if you update your will and revocable trust, that information cannot override the disposition of assets that have beneficiaries listed, like IRAs, annuities, and life insurance policies. In order to ensure that your assets are passed to the right person, you need to have that person’s name not only in the will but also on the asset itself.
Avoid Probate with a Revocable Trust
Probate is a court in which heirs to the deceased prove the will is valid and assets can be transferred from the deceased to the names provided in the will. This can take at least six months, or often much longer with complex estates. Creating a revocable trust can replace the need for a will by designating who receives each asset upon death and allowing those assets to pass to the heirs without the need for probate. It’s a huge convenience and comfort factor to have a revocable trust.
Reduce Taxable Estate
If you know that your estate will be valued at more than the federal estate tax exemption level, which is $5,450,000 per individual in 2016, then you should make annual tax-free gifts to minimize your taxable estate upon death. Up to $14,000 can be gifted per spouse each year without accruing a federal gift tax. Paying tuition for the benefit of another can also be considered a tax-free gift.
This is the age of the baby boomers, making estate planning more important than ever.