5 Estate Planning Steps to Take Now

If you haven’t already put together an estate plan, there is no time like the present. While deciding what to do with assets after your death can be an uncomfortable topic for many, it can be equally uncomfortable to envision your estate tied up in probate court for months or years. If you want your loved ones to inherit assets smoothly, without a lot of legal hassle and tax risk, an estate plan is an essential part of your overall long-term financial plans. 

Draft a will. Yes, everyone needs a will - even those without a significant amount of money. Leaving directions regarding your final wishes can remove a lot of burden from family members at a difficult time. 

Name appropriate beneficiaries. Contrary to popular belief, a will does not provide the final say regarding some assets. Life insurance policies, retirement funds, and some other assets will be distributed to the beneficiary named on the account. If you don’t name a beneficiary, these assets will have to pass through probate court and a judge will decide their ultimate fate. 

Remember to review and update beneficiaries regularly, especially after major life events like a birth, death, or divorce. Naming a back-up beneficiary is a good idea, too. 

Consider a trust. Assets placed in a trust are not subject to probate court, meaning you can pass them directly to heirs without any legal hassles. For those concerned about protecting the privacy of their heirs, you might be relieved to know that assets within the trust are not subject to public record. 

Several different types of trusts exist, each with different limitations and serving unique purposes. Work with an estate planning attorney to determine the right type of trust for your situation. 

Pass some assets now. If you already know you want to leave money to certain family members, friends, or even charities, you don’t have to wait. For those with larger estates, who prefer to avoid inheritance taxes, gifting assets during your lifetime can help to accomplish that goal. Currently, you can gift up to $15,000 per person, per year, free of taxes (the recipient won’t owe taxes either). 

If you choose to donate money to charities, those gifts can be tax deductible. Make sure you have chosen IRS-approved organizations. 

Investigate Roth conversions. Since distributions from traditional retirement accounts can be taxed as regular income each year, you might wish to save your beneficiaries from that headache. Converting funds to non-taxable Roth accounts can be one way to accomplish this goal. 

Give us a call if you need more information on how to select beneficiaries and protect them from excess taxes. These measures should be taken under the guidance of an experienced financial advisor, who can help you minimize the tax burden on yourself as well.