When And How Should You Start Estate Planning?
Most asset and property owners often wonder what will happen to their assets once they’re medically incapacitated or if they pass away. People are inevitable to various medical conditions, and death is unpredictable, so setting everything in order would be best.
If you own valuable assets and property, estate planning safeguards your property’s ownership. Estate planning, the process of transferring such assets and properties to your beneficiaries, is an essential procedure. In most cases, once someone passes away, children, spouses, and extended family members would want some stake and shares from the deceased.
Unclear directions on property inheritance can cause conflict within the family. What’s worse is when the struggle ends in court cases. Working with professionals such as Two Spruce Law P.C. or similar law firms will ease the burden by following strategic steps to resolve the conflict. As such, estate planning is vital.
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Why Do You Need Estate Planning
Besides giving clear directions on what happens to your assets, there are several reasons you should start estate planning. These include the following:
- To protect your loved ones
- To minimize family disputes
- To limit tax liability
- To ensure care for your young ones
Having an estate plan is essential. However, you have to understand how to go about the process of creating one. Below is a guide on when and how to start the planning.
When To Start Estate Planning
Once you reach some milestones in your life, you’ll have to think about sharing your assets. Most advisors recommend starting estate planning once you reach the legal age of 18. Unfortunately, not most people have accrued enough assets by this age, so they push it to later years when they have established and made a fortune from their investments. This includes having a family, so their children can become beneficiaries.
Therefore, the best time to start planning is when you become responsible for your financial decisions, healthcare, and power of attorney. It helps keep everything accounted for. On the same note, you should update your legal information accordingly every three to five years. This way, you don’t leave out any vital information.
Some life changes dictate when you can update your estate planning information. They include the following:
- When you have children
- After buying assets or properties
- When there’s a death in the family
- After a divorce or marriage
- After receiving an inheritance
- When you start growing your savings account
Estate planning is crucial, and you’ll need professional assistance in drafting yours.
In this case, consulting a local financial advisor to guide you through the process would be ideal. Most people seek clarification between writing a will and estate planning since they’re often confused to mean the same thing. However, the two have distinctive differences.
While the will dictates who will manage your property long after you’re gone, estate planning is a comprehensive plan that includes before and after your death. The will handles what happens when you die.
On the other hand, estate planning considers when you can’t work or function normally because of a medical condition. This also means you can delegate tasks and even put someone in charge of your properties.
How To Start Estate Planning
The whole process of estate planning includes several details. As such, it’s important to learn them all before you embark on planning yours. On that note, consider these insights on how to start estate planning:
1. Educate Yourself
As indicated earlier, drafting an estate plan involves thoroughly scrutinizing and accounting for your assets. Learning the ins and outs helps you identify what goes into creating one. Essentially, the estate plan will cover who gets your property and how they’ll get it.
To come up with a concrete one, you’ll need to fulfill some requirements. Some of the basics needed when creating an estate plan include:
- A will
- A letter of instruction
- Medical and financial power of attorney
As you start estate planning, you’ll be required to fill in some essential documents. The basic requirements above should be addressed in your estate plan. If you don’t, it might be canceled and nullified.
It’s best to involve an attorney throughout the process. This way, all details are considered in coming up with the plan. Also, ask your attorney to verify most of the information. It helps you avoid using any misleading information that could make your estate plan canceled.
2. Gather Essential Documents
Once you’ve understood what you’re required to do, the next step is to get all the essential details set. For instance, you must have proof of ownership if you claim land ownership. In this case, a title deed should suffice.
The same happens when doing estate planning. You’ll need all the corresponding paperwork for authentication purposes. The essential documents you’ll be asked for when starting estate planning are:
- Housing and land deeds
- Business ownership permits
- Vehicle titles
- Insurance policies
- Land deeds
These documents may vary depending on your property and assets. For safekeeping, you should inform your executor and trusted members, such as your spouse, where you keep the documents. In the event of your demise, they are easily retrieved and acted upon depending on your wishes.
3. Hire An Attorney
Estate planning will go hand in hand with drafting a will. It’s so because the will mentions who the beneficiaries are. Even with an estate plan, you’ll need to write the will since it’s final. Luckily, an attorney can help you draft it. Ensure you tell them how to access it to make the transfer process easier for the beneficiaries.
It’s important to hire an attorney that you trust. Remember, they can act on your behalf in your absence. Many conspiracy theories exist of attorneys who collude with family members to change the will. It’s illegal, and one risks having their license revoked. Therefore, vet your attorney before hiring them. The law requires they be of sound mind and mentally able to read your will.
4. Review Your Beneficiaries
Before signing off on your estate plan, review the list of beneficiaries. It’ll be so sad if you leave out one of your children from the plan. Unless you do it intentionally, it will hurt them if you don’t leave them any inheritance. Therefore, confirm you have the right names on the beneficiaries list. This cuts across all documents. Confirm that the names appear in your trust, life policy, and will.
Having up-to-date names on your will makes it easier for the beneficiaries. Once you’re gone, the funds in your bank or retirement account can be paid automatically to the beneficiaries without going through the probate period.
5. Address Tax Obligations
It’d be best to address tax obligations to make it easier for those inheriting your assets. It might not profit them much if you leave a huge tax burden on your assets. As such, it’s vital to keep up with your tax obligations.
Also, find out the rules governing taxes in your location. Some states have death and inheritance taxes that could have some effect on your estate. Addressing them before passing the inheritance makes the process easier.
6. Specify Your Directives
A complete estate plan should include legal directives. Some of the key directives are:
- A trust: It’s a legal document stating where some proceeds of your asset are directed while you’re alive. Alternatively, your assets could be placed into a trust that has some benefits during your lifetime. They’ll be transferred to your beneficiaries after you die.
Putting your assets in a trust saves time and money for the beneficiaries since they’ll be transferred without going through a lengthy process.
- A medical care directive: In this directive, you might pass the powers to someone else who makes health decisions on your behalf when you can’t. For instance, if you’re in a coma, you might be unable to decide whether to stay on a life support machine. Someone else might have to decide for you. The medical directive is also referred to as the living will.
- Durable financial power of the attorney: This directive transfers the powers to make financial decisions to a third party when you’re not in a good medical condition to make any decisions. The powers include managing assets, signing financial documents, and paying bills.
- Limited financial power of attorney: This directive gives power to someone over everything that concerns you.
When giving directives, you should proceed with caution as it gives someone exclusive power to run your life’s major decisions. The bottom line should be someone you trust who has your best interests at heart.
7. Get Digital Assets In Order
When creating an estate plan, you might forget your digital assets. They include assets such as bank savings accounts and brokerage accounts. You also must write the physical addresses and provide contact information for firms holding the funds. Otherwise, the beneficiaries might not get them if you don’t include them in your estate plan.
Estate Planning: Conclusion
With the information discussed above, you can now schedule an appointment with your attorney to have them walk you through the legal processes required in estate planning. Moreover, you must regularly update your beneficiary’s information whenever there are major life events. This way, you’ll be sure to include all the beneficiaries in your plan. It also guarantees your assets and properties get into the right hands.