Estate planning, the process of planning how to preserve your assets for your heirs, is not just for the very wealthy. Everyone should engage in some form of estate planning. After working hard for many years, building up a business, and accumulating assets, you should make sure that those assets will not be unnecessarily used up but are preserved for your survivors. Here’s a basic guide to wills, trusts, and other estate planning tools.
What constitutes your estate? Essentially, it includes everything you own at the time of your death minus your debts. Occasionally, rules can apply which may bring back into your estate assets you’ve given away, or thought you’d given away.
Taxation considerations for your estate will vary depending on factors such as where you live and the total value of your estate. That’s why it’s so important for you to speak with your accountant to determine the most appropriate way for you to establish an estate plan that works for you.
In addition to a last will and testament, there are other important tools and documents you should consider:
- Postmortem letter
- Life insurance
A common misconception is that trusts are only suited for use by the very wealthy. That is just not the case today. People of a wide variety of income levels use them as estate planning tools. Trusts are complex and costly to set up and run, requiring a higher level of services from an attorney than wills. They are useful in accomplishing various estate and financial planning goals. Trusts can be used for many worthwhile purposes, some of which are listed below:
- Giving property to children
- Reducing estate taxes
- Leaving assets to a spouse
- Providing for life insurance used to pay estate tax
Your accountant, together with your attorney will be able to advise you if a trust is a viable proposition for you.
If you pass away, will anyone but you know where your tax records and supporting tax documents are located? How about your important documents such as deeds, titles, wills, insurance papers? Do these people know who your accountant/ your lawyer/ your broker is? By failing to leave your heirs this information, it will cause a lot of headaches and may also result in additional taxes and costs being incurred without the appropriate documentation.
The main purpose of life insurance is to provide for the welfare of survivors. But life insurance can also serve as an estate-planning tool. For example, it can be used to finance the payment of future estate taxes or to finance a buy-out of a deceased’s interest in a business. It can also be used to pay funeral and final expenses and debts.