Creating an estate plan is an important step in ensuring that your wishes are carried out and your assets are distributed according to your wishes. An estate plan is a collection of documents that includes a will, guardianship designations, health care power of attorney, beneficiary designations, durable power of attorney, and a letter of personal intent describing your wishes. It also includes non-tangible assets such as brokerage accounts, 401 (k) plans, IRAs, bank accounts, life insurance policies, long-term care policies, homeowners insurance, auto insurance, disability insurance, and health insurance. Everyone over the age of 18 should have a will to ensure that their assets are distributed according to their wishes and to avoid any potential disputes between heirs. A will can also name a guardian for your minor children and designate who should care for your pets.
You can also leave assets to charitable organizations through your will. If you have multiple retirement accounts from different employers or IRAs, you may want to consider consolidating them into a single individual IRA. This will enable better investment options, lower costs, greater investment selection, less paperwork and easier management. You may also want to set up 529 college savings plans for your grandchildren.
In these plans, savings grow tax-free and many states offer tax deductions for the person contributing the funds. A comprehensive estate plan includes four estate planning documents: a will, financial power of attorney, advance care directive, and living trust. A Last Will and Testament is a document that explains how you want to divide your property and assets when you die. It must also include who you designate as the guardian of your minor children or other dependents or pets as well as any specific instructions for their care. A trust accomplishes the same as well as appointing a trustee to carry out your wishes. Unlike a will, a trust can be used to distribute property now or after your death.
If your financial situation improves in the future, you can always modify your estate plan to include lower-priority beneficiaries. You may want to talk to a probate lawyer or financial advisor to figure out the size of the policy you'll need to provide support for your dependents. An estate plan can also dictate what happens to online accounts such as social media accounts, websites you own, email accounts or other digital assets. This is because estate plans are more than just the amount of money you have; they help ensure that your wishes for yourself, your family and your assets are fulfilled in the event of illness or death. A revocable living trust does not avoid estate taxes if your estate exceeds the estate tax exemption established by the federal government and your state. Life insurance is an important part of many estate plans especially if you have minor children or other family members who depend on your income. You should also create a list of invoices and accounts including contact information and account numbers for each one so that your representative can settle and close these accounts.
Knowing what you owe helps your executor manage your wealth and keep your beneficiaries' expectations realistic. Finally it will help determine if your estate plan should include trusts to benefit minor children adults who cannot manage their finances or administer charitable donations. When you don't have an estate plan financial decisions about your money health care and other issues may not be made the way you want them to. There are some plans that can automatically distribute funds to children or spouse while others may leave it in the hands of the estate which can have tax consequences that you don't want your beneficiaries to bear.