You need an estate plan no matter your financial wealth. Many people think only “rich people” have estate plans. No matter how old your children are or if you’re single, you should have an estate plan to lay out your wishes about your health care, finances, assets, and how your family will be taken care of. Even if you’re young with few assets, it’s smart to have an initial plan that can be updated as time goes on. Continue reading to learn more about protecting your estate for your family’s future.
The three goals of every estate plan are:
- Caring for your children and loved ones
- Making your wishes about your health care and finances known if you are incapacitated
- How you want your assets divided after you pass away
These goals are the basis of estate planning and the reason why you need to follow these steps to protect your estate and your family
1. Draft up a will
A will is the starting point of an estate plan. In a will, you can lay out who gets your different assets, when they will receive them, and how they will receive them. You can also include who you want as an executor, which is the person in charge of carrying out the wishes you discussed in your will. Having a will allows your estate to immediately go into probate. If you don’t have a will, the court will divide up your assets based on the laws in the state you lived in prior to your passing. This could cause your assets to be divided up in a way that you did not want.
If you have children that are under the age of 18, you can appoint a guardian for them in your will. If you decide to leave assets to your children, the guardian would also be in charge of managing those assets. Be sure to have a conversation with the person you want to be the guardian of your children before listing them to make sure they are aware and able to take on that role if need be.
2. Have a plan in place in the case you are incapacitated
It is possible for you to become unable to make your own financial and medical decisions so it is imperative to designate proxies to take over for you in a living will. You can devise a plan for your financial matter through a power of attorney. For medical decisions, you can utilize a health care proxy. When you choose a power of attorney, you are legally allowing someone to make decisions on your behalf. If you have specific wishes about life-sustaining medical intervention, you can state them in your living will.
3. Utilize a trust
A trust is a legal entity that allows a third party to manage the assets on the beneficiaries’ behalf. A trust allows you more control over how your assets are divided compared to a will and probate court. Having a trust will also lower the amount of taxes and probate that your beneficiaries will have to pay. There are revocable trusts and irrevocable trusts. Revocable trusts give you access to your assets while you are still alive and the ability to decide who receives those assets after you die. With an irrevocable trust, you have to permanently give control of your assets to a trustee to remove them from your estate.
4. Think about other estate planning vehicles
You can also think about other estate planning tools such as life insurance and stretch IRAs. Life insurance can provide your beneficiaries a specific amount of money if you pass away, which is typically used to cover funeral expenses, estate administrative costs, settle debts, and replace income for their dependents. Stretch IRAs give you the ability to pass on your IRA assets to beneficiaries and give them a tax-deferred status.
If you need assistance setting up an estate plan for yourself and your family, contact us at Plan A Wealth Management. We will be able to advise you through the estate planning process and help you pick the best options for you and your family. Give us a call to get started.