Estate planning is an important process to do at various points in your life. While you might not think you need to plan your estate and assets at the young age of 25 or 45, there are assets that you will likely have from your teenage years or twenties that need to be allocated to someone or somewhere.
We’d all like to hope that a long and healthy life is written for all of us. Sadly that’s not the case and while as morbid as it sounds, you want to plan for a future that you might not have. If you’ve not planned your estate yet, then this guide will share everything you need to know about estate planning and how to ensure it’s prepared properly as and when the time comes to allocate it.
What Is Estate Planning?
Estate planning and its objective is to ensure everything that you own is passed on correctly when you die. Depending on your wishes, it ensures your assets are divvied out in a tax-efficient way and with minimum fuss.
There are a lot of things that could be classed as an asset and therefore are worth factoring in your estate planning. These include:
- Savings
- Property
- Investments
- Cash
- Possessions and valuables
- Insurance policies
Why Should You Do Estate Planning?
Without estate planning, you’re leaving all of your assets in a fairly vulnerable position. Ultimately, you don’t have full control over your assets if there’s not a plan in place, like a will for example. That means your loved ones or those you wish to have your assets once you’re gone, may struggle to get them.
At the same time, if these assets need to be used while you’re alive but perhaps incapable of handling them yourself, an estate plan can help with this. You want to cause as little stress as possible but without estate planning, a lot of distress is caused.
You may also find your assets are more at risk of tax and fees if not allocated correctly, so it’s good to plan your estate when you’re in good health and of sound mind.
5 Steps For Estate Planning
There are several steps within the process of estate planning that are worth knowing and actioning to ensure you do it correctly.
- Start with a will
If you have any asset, or you become responsible for another human being, then a will is pretty much a given to put in place. It’s perhaps one of the most important aspects of estate and financial planning that anyone could have.
It sounds morbid to write a will, especially if you’re in your early twenties and just starting out in life. However, by having a will, you’re able to express your wishes through a legally binding document.
When it comes to creating a will, you’ll need to name all of the persons or the person, organizations, or charities that you wish to leave your assets to. You should also name an executor of the will, and this is the person responsible for handling the estate and ensuring all instructions are followed correctly.
- Get a power of attorney
While it’s not relevant when you eventually pass away, it can be something that’s incredibly helpful when you’re at a point in which you’re unable to make decisions yourself and need family members or loved ones to do it for you.
A power of attorney should be someone you trust implicitly and that knows your wishes and what you would like to happen, should you become physically or mentally incapable of handling your own affairs. A PoA can be a great addition to helping provide you with support when you might need it the most – and not even realize it.
- Look at minimizing any estate tax
When it comes to your financial assets or any of your assets that hold financial value like property for example, you want to look at where you could minimize possible estate tax. This is the type of tax that could severely dwindle the money or assets that go to your loved ones.
The range of estate tax varies from one state to another. Typically you’re going to expect anything from 12% to 19%. Five states only impose inheritance taxes, so it’s worth reading up on what your tax would look like when passing it on to your children.
- Put in place the right legal assistance
To help navigate the legal domain of estate planning, it’s worth making sure you’ve got all of your legal support available. That means having the right legal team or individuals who know how to estate plan properly. There are certain lawyer fees for probate that are worth understanding so that you can process such applications successfully and without fuss.
- Set up a trust
Setting up a trust is an important one when it comes to reducing your inheritance tax or estate tax bills.
A trust is a useful thing to have in place, especially if the children or grandchildren you might have might not yet be at the age required to manage the funds responsibly.
A trust is a legal contract where the trustee looks after the assets on behalf of the beneficiary that is named within the will or trust deed.
The type of trust you choose will determine how and when these assets are provided to the individuals in question. You may have certain conditions in place that need to be met before the assets can be released. It’s worth knowing that when you create a trust, you’re giving up ownership of your assets, which makes it no longer part of your estate – meaning less tax!
Setting up a trust can be a process that’s complex, so it’s important that when setting one up, you are taking your time with it and speaking to a financial advisor to make sure it’s the right fit for your assets.
Estate planning is an important process and one that’s essential for anyone with assets to do, so be sure to do yours as soon as you can.
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