Planning how your assets and financial matters will be handled after your death is not something you regularly think about. With terms like last will and testament, living revocable trust, and advanced medical directives, estate planning can be confusing and seem overwhelming. But it doesn’t have to be.
To help you start thinking about your estate planning needs, we’ve answered your most common questions.
FAQ 1: What is estate planning?
Estate planning is the process of determining what happens to your assets and debts when you pass. Effective estate planning happens long before your death and seeks to minimize gift and income taxes that your estate or heirs may pay.
FAQ 2: But I’m not wealthy or own a business. Do I have an estate?
It’s a common misconception that only the wealthy have estates and require estate planning. In reality, if you own a car, real estate, jewelry, clothes, life insurance, or retirement plans, you have an estate. Your estate is the sum of all of your assets.
FAQ 3: Why do I need an estate plan? Won’t my children automatically inherit all of my assets?
Probably but you'll have no control over who gets what.
If you die without an estate plan or will, the probate laws in your state will govern how your assets are divided up. If you have minor children, your state will appoint a guardian to look after their portion of their inheritance until they become adults. And if you’re married, your spouse will receive a part of your estate, too. However, the part they receive may not be large enough to live on or might be less than you would have wanted.
FAQ 4: I already have a will. Isn't that all I need?
Having a will is a good start. However, having a will doesn't avoid the probate laws. Assets you own or those you direct your will to distribute must go through the probate process. And if you own assets in other states, your estate will be subject to multiple states’ probate laws. Since the court is involved, your estate and heirs will be made public. Therefore, distant relatives or anyone who believes they are entitled to a piece of your estate can come forward to challenge your will. This will increase legal fees and court costs—reducing the inheritance your heirs will receive.
You should consider a living trust if you want to avoid the probate process.
FAQ 5: What is a living trust?
A living trust is a legal arrangement between you, a trustee, and your assets. You place your assets into the trust and the trustee is responsible for managing the assets until your death. Upon your death, the trustee will distribute the assets to the heirs that you designate.
Unlike the probate process, you choose the trustee that will manage your assets and the trustee can be you. It’s not uncommon for the person who creates a living trust to also be the trustee. Married couples that create a living trust together are often co-trustees.
FAQ 6: I’ve heard about the estate tax. Will my heirs have to pay this on their inheritance?
One of the goals of estate planning is to minimize taxes that your estate or your heirs will have to pay. You’ll only have to worry about the federal estate tax if you have a multi-million-dollar estate. Keep in mind, your state may have its own estate tax with a lower threshold.
Also, there are a few states that impose an inheritance tax. Unlike the estate tax, which is imposed on the value of the entire estate, the inheritance tax is imposed on those who inherit property from your estate.
FAQ 7: Is estate planning expensive?
Estate planning provides you with peace of mind knowing that you have control over how your assets will be passed to your heirs and ensuring your loved ones are taken care of after your death.
You don’t have to complete your entire estate plan right now. Start with a will, power of attorney, and medical directive. These are all easy to complete now and an experienced estate planning attorney or advisor can help you with these. And as your life changes and you acquire more assets, you can add a living trust.
FAQ 8: What’s a power of attorney and a medical directive?
These two agreements are used while you’re still alive. The power of attorney is an agreement where you give someone power to make decisions about your assets on your behalf in the event you become unable to make decisions for yourself.
The medical directive is specific to your health and states your desires for healthcare options in the event you are unable to make decisions for yourself due to illness or incapacity.
FAQ 9: Are there other things I should consider in my estate planning?
Although making sure you control how your assets are divided when you pass is important, there are some other non-financial decisions you should think about. Consider the following things when creating your estate plan:
- organ donation
- charitable donations
- funeral arrangements
- care for dependent children and surviving pets
- beneficiary designations for retirement plans or life insurance
When you’re ready to start your estate planning journey, contact us. We’ve helped thousands of clients and we’d love to help you, too. Regardless of where you’re currently at on the path, let us help you plan for your family’s future.
Investment Advisory Services offered through Sound Financial Strategies Group, Inc. (“SFSG”), aRegistered Investment Adviser. Certain representatives of SFSG are also Registered Representativesoffering securities through APW Capital, Inc., Member FINRA/SIPC, 100 Enterprise Drive, Suite 504,Rockaway, NJ 07866 (800)637-3211. SFSG and APW Capital are separate and unrelated companies.
Posted on Mon, August 26, 2019
by Sound Financial