Estate planning is a very important step in the financial planning process.
What does it mean, what are the steps, and what’s the most effective way to plan?
Let’s dive into these questions in this estate planning guide.
What is it?
Estate planning is the process of figuring out what you would like to happen to your assets when you pass away. Assets include retirement accounts, non-retirement accounts, and physical assets (house, cars, etc.).
What should I do?
- Get an inventory – physical and non-physical items. Physical items can include property (primary residence, rental property, land, etc.), vehicles (cars, boats, recreational vehicles, etc.), and precious metals (gold bullion, silver bullion, etc.).
- Make a list of all debts – Mortgage, personal loans, car loans, credit card debt, etc.
- Make a charity list – Organizations and/or charities you would like to leave a specific amount of assets for.
- Make a few copies and send these lists to your estate administrator (more on this below)
- Review retirement accounts – Retirement accounts include traditional IRA, Roth IRA, Rollover IRA, and employer-sponsored plans like 401(k), SIMPLE IRA, SEP IRA, 403(b), and 457. (Click here to learn more about these plans). Whichever account(s) you have, make sure the beneficiary information is up to date.
- Review life insurance policies and annuities – Same go for any insurance policies/annuities you may have. Make sure the beneficiaries are accurate and up to date.
- Assign Transfer on Death (TOD) designations to non-retirement accounts. A non-retirement account includes individual brokerage accounts, savings accounts, money markets, CDs, etc.
- Create a will or a trust (more on these below)
- Get a list of accounts and passwords – any online account you may have, create a list of accounts, usernames, and passwords. This makes it easy for the person in charge of your estate (executor) to cancel all these accounts.
- Visit some professionals – Meet with a financial professional and an estate attorney so they can review your plan and help you with any corrections or things that you’ve missed.
- Consolidate your accounts – If you have several bank accounts or retirement plans from past employers, consolidate them into one account. This makes it much easier on the executor.
- Select who you want to get what – Specify who you’d like to give your house too, cars, other physical assets, and money. You like to think that your family won’t fight over who gets what, but it happens very often, so take your time here.
- Write a living will – A living will is a document that you put together that states what medical treatment you would like to have done and what medical treatment you would not like to have done if you are incapacitated and/or unable to make any decisions.
- Establish power of attorney – A power of attorney is someone that you trust to make decisions for you. There is a medical power of attorney and a financial power of attorney.
The person in charge of your estate. If you have a will, this person is called the executor. If you have trust, this person is called a trustee. If there is no person named in the will as executor and/or there is no trust/trustee named, the courts will appoint a personal representative.
This person collects assets, pays debts, and pays out any remaining assets. If a will or trust has been drafted, then the executor or trustee has to act in accordance with the will or trust.
A will is a legal document created by you and your estate attorney that specifies who will be your executor, the beneficiaries that will receive the assets that haven’t been specified yet (retirement accounts and TOD designations), and when those assets will be transferred.
A trust is similar to a will in regards to it being the “playbook” on who is in charge and where your assets will go. It is different, however, because you can transfer ownership of assets to a trust and any asset owned by the trust will avoid the probate process.
A court-based process where the will (if one was written) is verified of its validity. If it is, the court then goes ahead and appoints the executor named in the will as the estate administrator. This gives that person the ability to act in accordance with the will to distribute assets.
If there is no will, then the deceased died intestate. The court then appoints an estate administrator and they distribute the deceased assets in accordance with state law. They are also tasked with tracking down heirs of the deceased.
This can be an expensive process, however, so planning ahead to avoid probate as much as you can is always beneficial.
As I said in the beginning, estate planning is an important step in your financial planning process. Hopefully, you’ve learned a lot about what’s involved and what you need to do to sure up your estate plan.
For more information about estate planning and for our disclosures, visit www.crgfinancialservices.com.
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