An estate is the total property, real and personal, owned by an individual prior to distribution through a trust or will. Real property is real estate and personal property includes everything else, for example cars, household items, and bank accounts. Estate planning distributes the real and personal property to an individual's heirs.
Estate planning is the process by which an individual or family arranges the transfer of assets in anticipation of death. An estate plan aims to preserve the maximum amount of wealth possible for the intended beneficiaries and flexibility for the individual prior to death. A major concern for drafters of estate plans is federal and state tax law.
Wills and trusts are common ways in which individuals dispose of their wealth. Trusts, unlike wills, have the benefit of avoiding probate, a lengthy and costly legal process that oversees the transfer of assets. Sometimes, though, it will be useful to make inter vivos gifts (gifts made while the donor is alive) in order to minimize taxes. The Federal Gift Tax exempts certain levels of lifetime gifts.
What do I need to know about estate planning?
What kind of financial legacy do you want to leave? Chances are you've got some ideas. Maybe creating a foundation in your name. Helping your favorite charity. Or leaving it all to family.
One thing's certain — you probably don't want to let Uncle Sam decide. Rather than allowing your hard-earned money get consumed by taxes or misdirected, make sure your wishes will be met by preparing a proper estate plan.
If you haven't already worked out the details of your estate plan, here are a few things to consider.
Decide what matters most
Ask yourself, "What is most important to me?" Is it assuring loved ones' financial security? Supporting higher education, or your community? Protecting the environment? Your estate plan will ensure your money goes where you intend, and allow you to benefit the people and causes close to your heart.
Assess your current financial situation
Next, ask yourself, "Will my current financial situation allow me to accomplish these goals?" Now could be a good time to review your investments and insurance, including your retirement plan assets and employee benefits. You'll want to make sure your assets are growing to maximize your financial legacy.
Other tips: Review current IRS limits on the amounts you can give to your children now. Check that your trusts are appropriately funded. And review your ownership and beneficiary designations to make sure they reflect your current wishes — this is critical since it's your beneficiary designations, not your will, that determine distribution of your qualified plan assets.
Determine a plan to distribute your assets
It's vital to carefully plan so that your assets are distributed as you wish. Does your current plan meet your goals for wealth distribution? If not, it's a good idea to work with a financial advisor, tax advisor and estate-planning attorney to decide which estate-planning tools are right for you.
It's also critical to have a legally valid and up-to-date will. Additional estate-planning tools (such as trusts or life insurance) could also work for you. Consider whom your estate will benefit, whether the beneficiaries are capable of managing the inheritance on their own, and how you can best shield your estate from estate taxes.
Make your estate-planning goals a reality
Deciding how to direct your inheritance can be a complex process. A Liberty Financial Advisor can help make it easier by assisting in the coordination of your estate planning with your tax and legal professionals.
We can help you build a tailored, holistic approach to achieving your estate-planning goals. It's a smart way to fulfill your wishes — and make your legacy last.
