Estate planning is no longer a process reserved for the rich. Undertaking such steps helps you choose the people to inherit your possession and valuables when you are gone, which is important even if you don’t have pricey property or a massive IRA. Estate planning also reduces the chances of family fights and ugly legal battles regarding your assets, and gives you an opportunity to identify your children’s guardian in case of your untimely demise.
There are other benefits, too, reducing the estate tax you leave behind is one of the most foremost estate planning goals. This guide will help walk you through the estate planning process, the questions to ask as you undertake it, and common mistakes you will want to avoid.
What is Estate Planning?
Estate planning refers to preparations geared toward managing your asset base in case of death or incapacitation. It determines how your assets will be preserved, managed, and distributed among your heirs, and is done with the help of an experienced estate law attorney. It majorly covers the bequest of assets to the heirs and settling of all estate taxes and debts. The planning typically includes:
- Making a will
- Setting up a trust
- Making charitable donations that limit estate taxes
- Identifying the executioner and beneficiaries
- Creating beneficiaries on plans like life insurance, IRAs, and 401(k) accounts
- Creating an annual gifting program for non-profit organizations and charities
- Establishing a durable power of attorney to direct assets and investments
- Planning the funeral arrangements
Let’s take a look at some of the pertinent questions that you should ask when undertaking your estate planning.
7 Common Questions to Ask When Planning Your Estate
It is best to seek an attorney’s services when drawing up and filing legal documents during your estate plan. Essential questions to ask your attorney and which helps you achieve comprehensive planning include:
1. What plans do I need for joint ownership?
This is a fundamental question to ask regarding all your assets, including homes, cars, and accounts. Assets owned jointly may be passed to one of the surviving owners upon one of the named owners’ death. Ask your attorney what happens to all the assets that you co-own with others.
2. Who are my designated beneficiaries of all my assets?
Once you name a beneficiary for your assets and file a beneficiary designee form, the assets transfer automatically upon your death or incapacitation to the named individual. This question helps you know the types of accounts that allow the transfer, such as investment accounts, IRAs, types of retirement accounts, and life insurance policies.
3. Should I establish a living trust?
Ideally, a living trust is a legal document that resembles a will. It comes with several advantages as it allows your estate to be inherited by your named beneficiaries privately without probate delays and any frustrating and costly legal proceedings. Besides, a living trust gives you the power to determine how the chosen trustee will manage the asset in the trust in the event of incapacity or illness.
4. Why should I make a will?
It doesn’t matter the size of your estate, your priority should be to make a will. A will helps you control how your assets will be shared in case of death. It also enables you to identify the assets that are not transferable to the survivors because of joint ownership. Although each state creates a state-written will for people who fail to make their own wills, there is no guarantee that your wishes will be carried through because laws tend to vary from state to state.
5. What happens if I die without a will?
Except for the assets passed by operation of the law or beneficiary designation, the estate probate laws guide how your assets will be distributed should you die without a will. However, it is important to note these rules vary depending on your estate.
6. Can I prepare my own will?
Although you can plan your estate alone, it is often not recommended. A self-prepared will that doesn’t involve an estate planning professional will easily be attacked by discontented beneficiaries upon your death. You may also leave a lot of loopholes that weaken your documents and leads to fierce court battles. Seek other alternative ways to save on costs while working with professional estate planners
7. Do I need to complex a durable financial power of attorney form?
A durable financial power of attorney form enables you to choose a person to manage your financial affairs when incapacitated due to incompetence, sickness, or illness. The person you designated will be legally authorized to undertake all your financial matters as per your wishes.
Many other questions may arise throughout the process, making it important to work with a qualified professional to ensure you understand and can avoid missing any key steps. Always ask your attorney or wealth manager about any questions you have.
Common Pitfalls in Estate Planning
Estate planning goes beyond just writing a will. Although wills are essential, it is worth noting they are not the only crucial parts of estate planning. We will look at the common mistakes to avoid achieving a comprehensive plan that secures your estate and achieving peace of mind:
- Underestimating your estate
Many people underestimate their estate value and make the mistake of thinking they don’t need any estate planning. However, even if your estate is small by your standards, it is wise to think about the beneficiary when you die. If you take time and make a list of what you own, you will be surprised at your estate’s size.
Nobody is immortal, and you may die well before your time. Postponing estate planning is not wise as you may end up exposing your loved ones to lengthy and complicated court battles in case of premature death.
- Ignoring serious ill-health problems
If you are suffering from illnesses that can affect your competency levels, such as Alzheimer’s and other dementia-causing diseases, it is best to appoint a power of attorney as soon as possible to help manage your medical and financial decisions should it become hard for you to do so due deteriorating health.
- Forgetting to update your estate plan
Another common mistake that people make is to think that estate planning is something to do once and forget about it. The reality is life changes, and your real estate changes too, and it is vital to review your plans yearly to take in these variables.
Note: Some of the items you need to review and update regularly include assets held in trust, company assets, life insurance beneficiaries, jointly health properties, superannuation assets, and the estate beneficiaries. Your wealth manager and attorney will help you make sure you don’t miss any important steps.
How to Prepare For An Estate Planning Meeting
Thorough preparation for an estate planning meeting with your attorney and agents is crucial for its success. Bring your personal financial statements that show your assets and liabilities by category and the rough estimates of their value. Be sure to indicate the items you own alone and those owned jointly with other people. You should also obtain any life insurance policies and, if you have children under 18, identify one person who will act as their guardian if orphaned. You should also consider the individuals or institutions to serve as the executors and alternate executors of your estate.
Your Estate Planning Checklist
Your estate plan should include the following:
- Guardianship designations
- Healthcare power of attorney
- Letter of intent
- Beneficiary designations
- A durable power of attorney
As you draft your will, there are several questions you should have in mind to help you draft a solid document. Below are some of them:
Questions to Ask When Drafting a Will
The first step to ensure your wishes are met and instructions carried out without confusion or dispute is to cover all possible scenarios when making a will. The following questions can help you draft a non-contestable will:
- What should you include in your will?
- What is the difference between revocable and irrevocable trusts?
- Who should you appoint as estate executor/s?
- Is there a difference between a trust and a will?
- Who will receive your assets upon death, and how much will they get?
- What can be transferred into the trust?
- Who will you appoint as guardian of your family members, including underage children?
- How long does the probate take?
- Can I add my child’s name to the deed and bank account to assure that he will receive it after my death?
- How do you want to be farewelled?
While the above questions aren’t exhaustive, they are certainly an excellent place to start as you draft your will.
Trust the Professionals
Having a robust real estate plan is one of the wisest things to do for your loved ones. It is never too early to start your estate planning. If you are new to the concept of estate planning, you may find it an overwhelming process. As such, work with an expert estate planning attorney who will help ease the process. If you need help getting started, contact Bogart Wealth today to speak with an expert about any estate planning questions you might have.