Estate planning

Estate Planning Basics

No one wants to think of the inevitable, but there are some basic points regarding estate planning we should all know. There are complex trusts and gifting strategies that can be incorporated, but let’s talk about first things first. Do you have a will? How do you own your assets? Are your beneficiaries updated in your insurance policies or retirement plans?

A will is your last will and testament, which spells out your wishes when you become deceased. With a properly set-up will, your assets will transfer to the beneficiaries you desire. Without a will your assets will be distributed according to state law, and your spouse or children may not receive all of your assets.  Additionally, if you have children you will need to appoint a guardian to take care of them. It is important to see a qualified attorney to handle this for you. Do not attempt this yourself. We can refer you to an attorney that best fits your needs.

The way you own assets also affects the way assets are distributed upon death, such as your house. The two ways are tenants in common and joint tenancy. As tenants in common, your share of the house is passed to your heirs designated in your will. With joint tenancy, your share is passed to the surviving joint tenant, regardless of what your will states. It is important to make sure your assets are owned in the way that best suits your needs.

Life insurance is separate from your will. You will need to designate a beneficiary when purchasing a policy, and the same applies to your retirement accounts. Upon death the proceeds will be automatically transferred to your beneficiaries. This is why it is critical to update your beneficiaries periodically. Can you imagine if you are divorced and never changed your life insurance beneficiary who is now your ex-spouse? The answer is obvious – your ex-spouse will be very happy!

Many people tend to think that estate planning is only for the wealthy or they don’t need an estate plan. It can be a costly mistake to feel this way, especially since simple wills are not very expensive, and it doesn’t cost money to change your beneficiaries of your life insurance or retirement plans.

Estate Planning Mistakes

You don’t have to be wealthy to make sure your financial affairs are in order nor is estate planning just about minimizing taxes. Estate planning insures that your loved ones are taken care of and your intentions are carried out.

Not Having a Will: A will not only spells out how your assets will be distributed, but also spells out who will take care of your children should you pass away.  If you don’t choose a guardian, then one will be appointed for you by the court. Each state has different laws regarding who inherits your assets when you pass away, and it probably will not be who you would have chosen.

Choose Your Executor Wisely: The executor of your estate is supposed to handle the distribution of your assets and carry out your last wishes per your will after you pass away. The individual you choose should not have financial issues, such as gambling problems, debt problems, or tax problems. The executor does not have to be financially savvy, but should be trustworthy and knows when to seek legal, tax, and financial advice from qualified professionals.

Assets that Pass Outside of Your Will: Some assets are distributed through your will, but a surprising number of assets are passed outside of your will. These can include life insurance, IRA’s and retirement accounts, transfer on death accounts, trusts, and assets owned as joint tenants, such as real estate. This is why it is important to make sure that your beneficiary selections are up to date and you have property titled correctly.

Other issues to consider are living wills, healthcare proxies, and appointing a power of attorney. Estate planning is a sensitive subject, but should not be delayed until it is too late.

Don’t Make These Mistakes

With all of the financial and tax laws, changes to the laws, and life changes it is almost impossible to stay on top of everything. We have to constantly assess our situation all of the time. Here are a few things to consider:

Wills, Beneficiaries and Estate Matters: Did you recently get married, have children, or get divorced? If so, then you need to make sure that your will is up to date, along with your beneficiaries of life insurance, retirement, and other financial accounts.

Required Minimum Distributions: Once you turn age 70 ½, you need to start taking distributions from your IRA’s the following year; the first one by April 1st and the next by December 31st. If you don’t do this then you may be subject to a 50% excise tax on the amount that should have been withdrawn.

Retirement Accounts: Are you contributing to your retirement accounts at work or through your business? If not, then what are you waiting for? You may be losing out on employer matches and also tax savings. The simplest way to start is to contribute a small amount, such as 1% of your income and then increase the percentage over time. If you are already contributing to a retirement account, then try to increase your contributions.

Social Security: The biggest mistake with social security is the temptation to start receiving your benefits at age 62. Unless you have known health issues, the biggest risk is actually living too long and receiving a small benefit for the rest of your life. Let us know if you need us to talk you out of this!

No Action: This applies to absolutely everything and not just financial matters. By far, the largest mistake is not taking any action to help your financial situation. Don’t let this happen to you!