9 Essential Estate Planning Basics Everyone Should Know

family estate planning

Business acumen doesn’t always transcend to Estate planning know-how however the good news is you can do it, without it being an overwhelming task.

With our helpful estate planning basics guide, you can be on your way to planning your future and the future of your loved ones with ease.

Only 44% of Americans have a will. That marks a drop from 51% in 2005. If someone passes away without a will or any other estate planning basics, they will not have any control over how their assets and property are managed.

Although mortality isn’t the easiest topic to think or talk about, proper planning is the only way to protect what someone has worked so hard to build. And with the right guidance, estate planning is easier than most people expect.

To get a better understanding of exactly what this process involves, we want to cover nine essential elements of estate planning:

1. Know the Benefits

Getting through this process does take some time and effort. Understanding all the benefits from the beginning will help you stay motivated.

Protecting your spouse, minimizing taxes, passing assets to future generations and supporting any causes you care about are all direct benefits of proper estate planning.

2. Understand Your Estate Planning Basics

Taking a basic inventory is the best place to start with estate planning. You’ll want to identify all of your assets, as well as your personal objectives for what to do with them.

For example, if you’re involved in a family business, creating a succession plan will likely be one of your top objectives. Another potential goal is if you support any family members with special needs who will require additional resources.

3. Federal Taxes

Taxes play a central role in estate planning. When done correctly, this type of planning will minimize the federal tax obligations of an estate.

Recently, the exemption for federal estate tax was significantly increased. But that doesn’t change the importance of thorough planning. Going through this process will provide an opportunity to address issues like foreign income tax liabilities.

4. Federal Gift Tax

The reason the gift tax gets its own section is it’s viewed by the IRS as separate from the exemption amount discussed above. As of this year, $15,000 can be gifted each year without impacting the lifetime exemption cap.

It’s also important to note that the $15,000 limit is per individual who’s gifted. The other notable caveat is there’s no limit to gifts given to a spouse.

5. Get the Right Documents

A last will and testament is the document that brings all of these different estate planning elements together. This document will state exactly how your assets are handled. It will also define the parties responsible for carrying out your wishes.

When someone passes without a will, distribution defaults to the interstate laws of their state. While an estate with a will may still go through probate, key elements won’t be left up to chance.

6. Different Types of Trusts

Trusts are another important document in the estate planning process. The basic role of this document is to explain the who and how of specific asset distribution.

There are three main parties involved in most trusts. A grantor creates the trust. A beneficiary receives the assets, and a trustee ensures that assets are properly executed.

In addition to the multiple parties, there are two main types of trusts. A living trust is created while you’re alive and can be changed at any time. The other type is an irrevocable trust, which cannot be altered.

If someone has a living trust and passes away, that trust will become irrevocable. The flexibility that trusts offer means it often makes sense to utilize multiple ones as part of an overall estate planning strategy.

7. Optimizing Your Strategy

Putting together all the pieces of your estate strategy isn’t something you need to do alone.

Instead, an attorney familiar with estate law can help you with all the necessary elements.

In terms of cost, there’s a wide range depending on the specific needs of an estate. According to Clear Counsel Law Group, prices can start at $300 for basic estate planning forms and go all the way up to over $3,000 for complex estate planning.

What can separate simple planning from a more complex process? An outright bequest is an example of a simplified strategy. This means that a beneficiary will receive assets without requiring a trust.

A disclaimer plan is an example of a more complex strategy. This allows a beneficiary like a spouse to legally decline certain assets and then make current decisions about how they’re handled.

8. Selecting and Designating Fiduciaries

The documents created throughout the estate planning process establish a number of different roles. Because these roles will be responsible for carrying out the details of your will and other documents, it’s important to choose wisely.

An executor is the first role you’ll need to fill. This can be one or more individuals who are tasked with managing your estate. The obligations associated with being an executor can last from six to twenty-four months.

Other fiduciary roles you may need to fill are a guardian, agent and trustee.

The estate planning professional you work with will help you understand the requirements of each role so you can pick the optimal candidate.

9. Staying Up to Date

Estate planning isn’t something you do once and then forget about forever. Because your personal and financial situation will continue to evolve, it’s important to periodically revisit your key documents.

Making this type of occasional review a habit will ensure that you’re able to easily spot any changes that need to be made in order to keep your will and other estate information fully up to date.

What’s Next?

By taking time to fully familiarize yourself with all nine of the above estate planning basics, you will have the knowledge needed to take the right steps towards securing your family’s future.

For even more information about optimizing your financial well-being, check out our accounting & finance section.

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