You and your spouse might know the supreme importance of estate planning, but sometimes it’s a question of where to start. No matter your net worth, you need a plan set in place that can help your heirs understand your final wishes and take care of your children. As you prepare to answer these important questions, use this as a guide to get started and take action.
Name an Executor
After your passing, you’ll want to have somebody in place who can execute your wishes. This person is aptly named an executor.
Many people choose a spouse, sibling, adult child or close friend as executor. In most cases, the job is fairly straightforward. Still, you might give special consideration to someone who is well organized and capable of handling financial matters. Someone who is respected by your heirs and a good communicator also may help make the process run smoothly.
Above all, an executor should be someone trustworthy, since this person will have a legal responsibility to manage your money, pay your debts (including taxes) and distribute your assets to your beneficiaries as stated in your will.
If your estate is large or you anticipate a significant amount of court time for your executor, It's an option to appoint a company as your executor. Businesses such as certain banks, attorney, or others provide this kind of service to families who need or want someone else to do the job of an executor. These individuals will typically charge a fee, which would be paid by the estate. In some families, singling out one child or sibling as executor could be construed as favoritism, so naming an outside party may be a good alternative.
"A good man leaves an inheritance to his children's children, but the sinner's wealth is laid up for the righteous." Proverbs 13:22 ESV
Understand Estate Taxes
Tax planning should be an integral part of your estate planning strategy. You’ll want to work with a tax professional who can help you navigate state inheritance laws and federal estate taxes. Note the federal and state rules are different and can apply differently for a given situation. Estates under a specified size may be exempt from estate taxes and/or filing requirements. It's important to check with a professional to confirm how to properly apply and decipher the rules.
Prepare Your Health Care Documents
Healthcare documents spell out your wishes for health care if you become unable to make medical decisions for yourself. They also authorize a person to make decisions on your behalf if that should prove necessary.
These documents may include:
- Living will
- Power of attorney agreement
- Durable power of attorney agreement for healthcare
Assess Your Life Insurance Policy
When was the last time you assessed your life insurance coverage? Have you compared the life insurance benefit with your financial obligations? Life insurance can be a critical way to provide for your children of you or your spouse passes away prematurely. Keep in mind that several factors will affect the cost and availability of life insurance including age, health and the type and amount of insurance purchased.
Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Select a Guardian
Choosing a guardian for your children is one of the most important things you can do as part of an estate plan. If you don't choose and document with the proper legal processes, the government will choose what happens to your children if you pass away. No one wants that. You and you spouse should choose a guardian who would care for your children in the event you both pass. This should also include a backup guardian. Carefully and prayerfully consider who would be the best choice for this important role.
Write a Letter of Intent
A letter of intent is a non-legal document that outlines your wishes. A strong, well-written letter may save your heirs time, effort and expense as they administer your estate. It acts as a message from the deceased and can include an array of information from providing organization and outlining last wishes, to detailing information and sending personal messages. Consider including instructions for your funeral arrangements and other details that are important to you.
Examples of information that could be included in a letter of intent:
- Funeral, burial, or cremation arrangements
- Funeral/memorial wishes
- List of bank accounts
- Safety deposit box locations
- Instructions for personal items
Organize Your Documents
After your passing, you’ll want your heirs and executor to be able to easily obtain and access important documents.
These documents may include:
- Your will
- Trust documents
- Life insurance policies
- Deeds to any real estate, and certificates for stocks, bonds, annuities
- Information on your financial accounts and safe deposit boxes
- Information on your retirement plans
- Information on any debts you have: credit cards, mortgages and loans
- Contact information for any CPAs, attorneys, financial advisors, or other professionals that can help your executor
Consider backup copies of the above information. For example, you may want to have a digital copy of everything above in addition to paper copies in a safe (fireproof) in your home.
Talk to Your Family
Do you have adopted children? Have you been caring for any foster children? Have you been caring for a niece or nephew? With the help of a financial planner and an attorney, you can structure a will or trust that accounts for everyone you wish to provide for. The more clear and specific you can be the better, as you will reduce the amount of confusion among your family. Otherwise, everyone who thinks they deserve something from your estate may try to extract it in probate.
There are many factors to consider when creating a will or trust. Before diving into the estate planning process, you should consult with a seasoned financial professional and estate planning lawyer. They will help you make sure you’ve covered all the bases when working to plan for your passing.
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