Your estate plan has an impact that can reach beyond financial issues and your lifestyle. As you begin to consider what kind of legacy you would like to leave your loved ones, be sure to seek insight from your team of professionals including your financial advisor, an estate planning specialist and tax attorney. To help you begin thinking about estate planning basics, consider taking these important steps to get started on your overall estate plans.
Create a Will
A will provides an individual with the opportunity to nominate guardians for minor children or dependents as well as an executor for the estate. The executor will serve the vital function of gathering and disbursing the assets of an estate and seeing that all of the related tax issues are handled. You may choose a professional who can handle these executor matters or you may choose a relative or a friend who can hire any professional help.
Update Beneficiary Designations
Beneficiary designations should be reviewed periodically and kept up to date (especially after major life events such as births, deaths, marriages and divorces). If beneficiary designations for such things as retirement accounts or insurance policies are outdated or inaccurate, your assets may pass to
people you did not intend to benefit.
Establish Health Care Directives
An estimated 32% of Americans have filled out living wills. That potentially leaves nearly 70% with no written evidence as to whether they wish to receive life-sustaining medical treatment in the event they should become incapacitated or terminally ill. You can also designate a “health care proxy” who will be authorized to make medical decisions for you if you are incapacitated.
Consider a Power of Attorney
It is important to be certain that your financial affairs will be managed if you become disabled. Talk to your estate planning professional about creating a durable power of attorney that authorizes someone you trust to handle financial matters.
Establish a Trust
One of the primary purposes of a trust is to avoid probate, which may mean that your estate can be settled more quickly and at a lower cost. Perhaps more important to some individuals is that a trust be private, whereas probate proceedings are a matter of public record. Since there are several types of trusts, you should contact an estate planning professional to determine which type of trust is right for you.
Plan for the distribution of your Retirement Assets
It is important to plan carefully when completing the necessary beneficiary forms. If you participated in an employer-sponsored retirement plan from which you are eligible to receive benefits, be sure to keep plan administrators advised of your current address and keep your beneficiary designations up to date. Also, make sure your beneficiaries know about any plans from which you may have benefits coming.
You may want to check with a Financial Advisor to determine whether it makes sense for you to consolidate your retirement assets by rolling them over to an Individual Retirement Account. An IRA may provide long-term distribution and investment opportunities that may not be available from an employer’s plan.
Use gifting strategies to reduce estate tax liability
Gifting can be an excellent way to reduce the taxable amount of your estate. In 2015 an investor can gift $14,000 per beneficiary on an annual basis. Couples can gift $28,000 per year per beneficiary. Charitable donations are another form of gifting strategies. Any assets donated can reduce the overall value of the taxable estate and are often income tax deductible.
Decrease or eliminate Estate Taxes
Property passing to a surviving spouse is generally exempt from estate taxes. As of 2015, there is a $5.43 million limit on the amount that can be passed on to a decedent’s non-spousal heirs estate-tax free. There are a variety of ways to decrease the taxable amount in your estate so that many Americans can minimize estate taxes through careful estate tax planning.
Draw down your Assets
During retirement it is important to consider what sources of assets are being used to maintain your lifestyle. These sources often have drastically different tax consequences. We can discuss the best way to draw from your tax-deferred, taxable or tax-free assets for cash flow needs to minimize your own taxes and the taxes to be paid by your heirs.
With the assistance of a Financial Advisor, you may be able to avoid common estate planning mistakes and help ensure that your heirs are not burdened by unnecessary emotional and financial stress when settling your estate.
Contact me to set up a complementary consultation to review your estate planning options.
(Listed content was originally created by MFS Fund Distributors, Inc. Boston, MA)