Lifestyle
Estate Planning Essentials: A Quick Guide For 2022
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It’s common knowledge that estate planning is about writing a last will and testament. However, a thorough estate plan involves much more than just a will and testament.
Your plan needs to include all provisions facilitating a seamless transfer of your assets to the people or entities that you choose, at the time that you choose, and with minimal tax impacts.
Regardless of whether your estate is small or large, it’s important to have a comprehensive plan detailing how your assets will be distributed among your beneficiaries in the event of your death or incapacitation.
Here’s a quick checklist covering all estate planning essentials to keep in mind in 2022.
Table of Contents
Create Your Inventory
At first glance, it may seem like you don’t have enough stuff to warrant a detailed estate plan. But once you start going through the inside and outside of your home, you might be surprised by the sheer number of assets you possess.
To begin with, list all the tangible assets in your estate, such as home, land, vehicles, and other physical possessions. Next, itemize all the intangible assets under your name.
Items to list here would include things like brokerage accounts, bank accounts, individual retirement accounts, life insurance policy, and other insurance policies you may have.
Value Your Possessions
Once you have an inventory of all your tangible and intangible assets, the next step is to estimate their value. You can make do with external valuations for some of your assets.
For example, if you had your home appraised recently, you could use that as a rough estimate of the home’s worth. Statements from your financial accounts can also help provide the value of your possessions.
Valuing the items you have helps ensure your assets are distributed among your heirs as per your wish. Through valuations, you can make an informed decision on who gets what after you die.
Protect Your Family and Assets
Now that you have an idea of what your estate is worth, it’s time to think about how to secure the assets and your loved ones after you’re gone. You can do this by:
- Taking out adequate life insurance – How much life insurance coverage is enough? It depends on multiple factors including your lifestyle and whether you’re married. Life insurance makes even more sense if you have school going children. You can learn more about the benefits of choosing the right life insurance plan here.
- Designating a guardian for your children— This can help avoid costly family court battles that could deplete your estate’s assets.
- Documenting your child-rearing goals— Designating a guardian for your children is not enough. You need to document your child-care wishes and goals to guide your children’s guardian.
Put Your Directives in Place
A comprehensive estate plan includes four key legal directives:
A will – This is a legal document that guides how an executor will distribute your assets after you die. If you die without writing a will, your assets will be distributed according to your state’s intestacy laws.
A trust – This is a legal arrangement that allows a trustee to hold and manage assets on the beneficiaries’ behalf. Trusts can prevent your assets from going on probate, which is an expensive and time-consuming process.
A medical care directive – Also known as a living will, this spells out a plan for getting you the medical care that you would want when you become critically ill and unable to make decisions regarding your health.
A power of attorney – The document authorizes the person you choose to manage legal and financial finances on your behalf when you can’t. This includes managing your assets as well as paying your taxes and bills.
Also, Check – 4 Ways In Which Trees Help Us Grieve
Designate Your Beneficiaries
As earlier stated, the fate of your assets could rest in the hands of a court if you do not name a beneficiary, or if the named beneficiary is deceased. If you do not want your funds to go that route, make sure you designate your beneficiaries.
Generally speaking, for assets like 401 Ks (retirement accounts), IRAs (Individual Retirement Accounts), life insurance payout, or annuities, your assets are immediately transferred to your designated beneficiaries upon your demise. This way, funds do not go on probate and become available to your beneficiaries relatively fast.
A beneficiary designation is not a fixed, one-and-done process. You can conduct a periodical review of your choices, and remove or add beneficiaries depending on your preferences.
Plan an Ongoing Review
Your estate planning needs may change as you get older. So you should revisit your estate plan every time your circumstances change. This may include the birth or death of a loved one, marriage or divorce, getting a job promotion, or being terminated.
It’s generally a good idea to reassess your estate plan from time to time even if your circumstances remain unchanged. Remember, even if your situation doesn’t change, your state’s laws may. Revisiting your plan can help you keep up with your state’s estate planning laws.
The Bottom Line
Improper or no estate planning is one of the biggest mistakes that could cost your family’s financial future. It may lead to disputes among your heirs, long court battles, assets being passed on to the wrong people, and excess money paid in taxes. So take advantage of these estate planning essentials and get started today.
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