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12 Simple Steps To An Estate Plan

Posted by David Foyil | Mar 22, 2017 | 0 Comments

1. Make a will.

In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.   Keep in mind that a will does not avoid probate, which is the legal process of administering an estate through the Court.  Probate can be a very costly and time consuming process.  For example, in California the cost to probate an estate with a gross value of $300,000 (no deduction is made for debts, i.e. the amount is not determined by the "equity" of the estate), typical attorney's fees would be around $9,000, administrator fees around $9,000, and costs around $1,000-$1,500.  To determine if probate is required for your estate and how to avoid it, you should speak to a qualified attorney.

2. Consider a trust.

If you hold your property in a living trust, your survivors won't have to go through probate court, a time-consuming and expensive process.  A trust is a separate legal entity typically created and managed by an individual or couple for purposes of managing their assets for their own benefit during the remainder of their lifetime, while appointment another person or entity to manage the distribution of their assets after they pass away.  Although there are typically legal costs associated with the management of a trust after death, the costs are typically less expensive than probate and the distribution of assets can be faster.  In addition, the distributions can be handled privately since there is no formal court process involved.

3. Make health care directives.

Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself.  Health care directives include a health care declaration ("living will") and a power of attorney for health care, which gives someone you choose the power to make decisions if you can't.

4. Make a power of attorney.

With a durable power of attorney for finances,you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn't have to be an attorney).  A power of attorney can be "immediate," meaning it gives authority to your agent to make decisions and execute transactions on your behalf as soon as your sign it, or can be "springing," meaning it only becomes effective if you have been certified as incapacitated by medical professionals.

5. Protect your children's property.

You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.  If you have life insurance which names your children as a beneficiary, you will want to review your policy and determines what happens once the children turn 18   You may not want a significant amount of money suddenly turned over to the youth and inexperience of an 18 year old adult.  You should consult a qualified attorney to discuss alternatives for how to transfer life insurance benefits, or any other asset, to young adults.

6. File beneficiary forms.

Naming a beneficiary for bank accounts and retirement plans makes the account automatically "payable on death" to your beneficiary and allows the funds to skip the probate process.  Likewise, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.  As noted above, it may be unwise for these assets to suddenly come into the hands of a young adult on his or her 18th birthday.  Consult a qualified attorney for guidance.

7. Consider life insurance.

If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.  In addition you should consider the financial needs to provide day to day support for your children if your income is no longer available to provide for their needs and/or college funding.

8. Understand estate taxes.

Most estates -- more than 99.7% -- won't owe federal estate taxes. For deaths in 2016, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.45 million.  (This exemption amount rises each year to adjust for inflation)  Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity are exempt from the tax.  The complexities of estate taxation are best left to qualified professionals.

9. Cover funeral expenses.

Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.   Most funder prepayment plans are simply small life insurance policies which may or may not actually cover the cost of final care services.  Usually there is little or no medical underwriting for these policies which mean that if you are in good health and you wish to have such coverage in place, you should comparison shop for the best rates.  The premiums underwritten through funeral homes are typically not competitive.  In addition, such policies may have limited benefits if a person passes away within the first two years after issuance of the policy leaving little coverage.

10. Make final arrangements.

Make your wishes known regarding organ and body donation and disposition of your body -- burial or cremation.

11. Protect your business.

If you're the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.

12. Store your documents.

Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:

  • will
  • trusts
  • insurance policies
  • real estate deeds
  • certificates for stocks, bonds, annuities
  • information on bank accounts, mutual funds, and safe deposit boxes
  • information on retirement plans, 401(k) accounts, or IRAs
  • information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
  • information on funeral prepayment plans, and any final arrangements instructions you have made.

Make sure he or she knows where they are and how to access them.

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