6 Things to Consider When Drafting an Estate Plan

We live in a world where unexpected events happen, whether we are ready for it or not, it will come. Hence, planning should be one of our key pointers while working to build wealth.

The planning of wealth has gone beyond transferring assets due to death or inability to work. It now involves putting everything in place while alive and healthy. Thus, it aids proper management and safekeeping of one’s assets. And one of the best ways of doing this is through estate planning.

What Is Estate Planning?

Estate planning is managing and sharing one’s assets in a manner one deems profitable. This could be while one is alive and in the course of sad events such as death. 

Most people think estate planning is for the wealthy. But it is wrong because you must plan every property you own. Hence, planning your assets removes the risk of losing them to the state or into the wrong hands. It also protects your children from losing everything.

So, you can plan for your estate according to the estate planning law of your state. But before doing that, you must consider certain things involved in drafting an estate plan.

What to Consider When Drafting an Estate Plan?

As the name implies, estate planning is a plan, and you should be cautious while drafting it. Hence, here are some pointers to consider when drafting an estate plan.

1. Take Inventory of your Assets

You may think you don’t have enough to warrant estate planning. But, the amount of tangible and intangible assets you have could surprise you once you look.

The tangible assets in an estate may include:

  • Homes, lands, or other real estates
  • Vehicles such as cars, buses, choppers, motorcycles, or boats
  • Collectibles such as coins, art pieces, antiques, trading cards,
  • Electronics, jewelries, and other personal belongings

The intangible assets in an estate include:

  • Checking and savings accounts and deposits
  • Stocks, bonds, and mutual funds
  • Life insurance policies
  • Retirement plans
  • Health savings accounts
  • Business ownership

After making an inventory of assets, you must determine their estimated values. Some third-party valuations can be helpful for some assets:

  • Recent home valuations
  • A statement of your accounts’ transactions

But if the third-party valuation is not available, you can do it yourself. You can value the objects according to what you expect your heirs to find valuable. This can help ensure that the individuals you care about receive your things.

2. Writing a Will

Anyone older than 18 should have a will. It serves as a guide for how you will share your assets and may help your heirs avoid conflict. 

A will can also specify who should look after your pets and assign a guardian for your younger children. Through your will, you can also donate property to charitable organizations.

Depending on your assets and location, many attorneys can draft a will at a low cost. Wills are cheaper estate planning documents to create compared to others. Also, you can create your own will using online services and software.

Thus, ensure you sign, date, and notarize your will. You should also have two witnesses who will sign the will with you.

Last but not the least, let others know where the document is so they may find it when they need it.

3. Use Professional Help

Seeking professional help in estate planning is vital. They help you sail through the process with little or no stress. But, the choice of hiring an estate planning attorney or estate tax professional depends on your situation. 

An online or packaged will-writing application may be okay for your needs. Especially if your estate is small and your wishes are clear. They work with the help of an interview about your life, wealth, and work.

Also, these programs often consider IRS and state-specific laws. And they guide you through the process. You can even make vital updates to the will by yourself.

But if you are unsure about the process and need more guidance, you can consult an estate lawyer or a tax advisor. They can help determine if your estate planning is on the right track. It works even better if you live in a state with estate or inheritance taxes.

An estate lawyer or tax expert can help you through the complex processes for big estates. This can include those with special childcare needs, business concerns, or disowned heirs.

4. Decide on a Legal Document 

When it comes to estate planning, a will is not the only legal document. So after setting all you need in your estate plan, you can draft legal documents to ensure things go as planned. These documents often include the following:

  • A will
  • Trust agreements
  • A medical power of attorney
  • Financial power of attorney
  • Guardianship designations
  • Insurance policies
  • Titles and property deeds
  • Letter of Intent

The letter of intent is not a legal document, but creating it is a good idea. It gives your family or executor access to private information. For example, your bank account passwords and access to vital files. Also, it lets them know your Social Security Number in case the need arises. 

5. Cross-check Your Beneficiary List

While your wishes show in your will and other legal documents, they may not apply everywhere.

Thus, it is crucial to cross-check your retirement and insurance funds. This is because choosing a beneficiary is a part of a retirement plan. It is also part of insurance policies. And it surpasses whatever you wrote in your will. So it is vital to check them and make changes as necessary. 

Moreso, it will ensure the correct persons get your properties. Sometimes people forget their beneficiaries, especially on accounts or insurance they’ve had for a long time. For example, if your former spouse is a beneficiary on your life insurance policy, your current spouse won’t get any of the policy’s payout if you don’t update your beneficiary’s list.

As a result, you must not leave any beneficiary sections empty. According to its estate law, the state will distribute the properties if found empty during probate. 

Finally, list potential beneficiaries. If your major beneficiary passes away before you do and you forget to change the primary beneficiary, then backup beneficiaries will be there to cover up.

6. Know the Estate Planning Laws in Your State

It is common to reduce estate and inheritance taxes through estate planning. But most people won’t pay those taxes.

The federal government only levies estate taxes on vast estates. An estate’s exemption from federal taxation in 2021 is $11.07 million and $12.06 million or less is exempt in 2022. 

What if your estate is bigger than the federal tax exemption amounts allow? If you want to lessen the taxes your heirs pay, you might want to consider using a grantor-retained annuity trust (GRAT).

More so, there are estate taxes in various states. So, estates with a value below the federal government’s exemption limit may be subject to estate tax. 

In addition, some states impose inheritance taxes. This means that the person who inherits your wealth can be subject to paying taxes on it.

Bottom Line

Before drafting that estate plan, you should go through the plan, so you don’t lose your properties. 

Also, work with your estate planning attorney. And put all these pointers into thought to create the perfect estate plan.

Related Articles

Leave a Reply

Back to top button