The most common misconception around estate planning is that only wealthy individuals need to do it. In fact, you should spend some time thinking about how you would like to distribute your assets after you pass away regardless of how much money you have.
In some cases, estate planning is as simple as drawing up a will and naming the beneficiary of your retirement savings. In other cases, it’s complicated and involves both a will and one or more trusts you have set up for various purposes. The following basic estate planning information can help you to get started.
Estate Planning: What is it?
Estate planning consists of plans and tasks that will determine how your assets are managed or distributed in the event of your death. This includes heir and inheritance planning and the settlement of any taxes on your estate. Most people receive assistance from an experienced estate law attorney throughout the process. Some common tasks involved in estate planning include:
- Drawing up a will
- Setting up trust accounts for your beneficiaries in order to limit estate taxes
- Identifying a guardian for any living dependants you may have
- Naming the executor of your estate and will
- Setting up and paying for funeral arrangements
- Setting up power of attorney
- Identifying the beneficiaries on assets such as life insurance, 401(k)s, and IRAs
Inheritance planning refers to the assets you will leave behind to your inheritors when you pass away. Typically, inheritors include surviving spouses, children, family members, and in some cases, friends or acquaintances. Inheritance planning is typically an ongoing process that involves periodic assessments and re-assessments. In addition, you don’t have to be retired to draw up a will and plan your inheritance. You should start as early as possible to ensure that your family members and loved ones are taken care of in the event of something unexpected. A will is the first step in determining who will inherit your assets.
Setting Up Trust Funds
Trust funds aren’t only for the rich. A trust fund is essentially a contract that identifies how assets will be held, managed, and paid out to a beneficiary. There are many different kinds of trust funds, and they’re all designed for different purposes. If you would like to set up a trust fund, it’s important to understand how trust funds operate beforehand.
Your trust fund can include cash, stocks, real estate, and other assets. You will need to meet with an attorney to identify your beneficiaries and determine the conditions of the trust. You can decide how and when your beneficiaries will be able to use the trust. For instance, you might decide to establish a monthly payment or a stipulation that the fund can only be used for education expenses. Other trust funds are set up to cover expenses in the event of an emergency such as an injury or medical issue, while others are designed to aid the beneficiary with the purchase of his or her first home.