Planning for what happens to your assets after you pass can be a sensitive, complex subject — one that many believe isn’t necessary if they’re simply passing their assets to their children.
The truth is, creating an estate plan is important for anyone that holds property or assets they want to ensure are passed along to the appropriate people. It also involves more than just your finances.
Before you start drafting your estate plan, you need to know all the ins and outs of the process, what it entails, and who should be involved.
Estate planning 101: What is it and why is it necessary?
Estate planning is the legal process of designating recipients of your assets in the event of your death or incapacitation. Through the estate planning process, you will specify heirs or beneficiaries of different aspects of your estate, and you’ll also be able to manage and minimize the tax implications that those individuals will face when the asset is moved to their possession.
An estate plan gives you control over your assets when you are no longer able to manage them. While your assets will still pass on to your family and loved ones without an estate plan, the process becomes far more complicated and can lead to your assets being distributed in a way you wouldn’t have chosen.
Four Steps to Creating Your Estate Plan
Building an estate plan doesn’t need to be overly complex. Here are four steps you can follow to get started.
1 – Identify who should be involved in the process. It’s always a good idea to work with an experienced estate planning attorney, who understands all the legal nuances of the estate planning process. You may also want to work with a financial planner and tax professional to ensure you’re establishing accounts in a way that makes the most sense for you and your beneficiaries.
2 – Inventory your assets. Make sure you have a clear picture of your assets before beginning your estate plan, including all tangibles and intangibles, even if you don’t believe they’re high in value.
Assets to consider include:
- Real estate (including homes and land)
- Vehicles (cars, motorcycles, boats, etc.)
- Hobbies and collectibles (art, antiques, coins, etc.)
- Heirlooms (jewelry, watches, furniture, etc.)
- Checkings and savings accounts
- Investment portfolios (stocks, bonds, mutual funds, etc.)
- Retirement accounts, including individual retirement accounts
- Health savings accounts
3 – Evaluate your family’s (or beneficiaries’) needs. An estate plan protects your assets and ensures your family and loved ones are taken care of. In addition to determining who takes control of your accounts and property, an estate plan should establish expectations and boundaries that will save your family money in court and legal expenses. For example, in the event that you can no longer take care of your children, naming a guardian for them in your estate plan eliminates any need for the court to decide guardianship.
If you don’t have a family to leave your assets to, or you have other wishes for your assets, an estate plan bypasses the standard probate to ensure your property and accounts end up in the right hands.
4 – Check your documentation boxes. Estate planning can quickly become complicated because of the number of documents involved. Each of them is important, so it’s crucial that you don’t try to cut corners when it comes to necessary documents. Your attorney can provide you with more definitive guidance on what you need, but here is a list to get you started:
- Will and trust
- Guardianship and beneficiary designations
- Power of attorney
Regardless of where your estate stands, it’s smart to have a plan in place to ensure your assets transition according to your wishes while minimizing the impact of taxes and court fees on your beneficiaries.
Want a complete guide to estate planning? Get your copy of our estate planning checklist to see how prepared you are and uncover areas that require attention..
Our team of experienced financial professionals can help you design and draft an estate plan that protects you, your assets and your family. Get in touch today to learn more.
