You obtain a number of assets in your lifetime, including vehicles, real estate investments and even the money in your checking account, among others. If you die or are otherwise unable to manage your own estate, something has to be done with all of those assets. This is where estate planning comes in.
This process involves working with a financial planner and attorney to create a plan for how your assets will be distributed in the event of your death or incapacitation. The purpose of this plan is to ensure that your surviving family has financial security following your passing and that there is minimal tax imposed on the property left to your heirs. Not only can you decide whom you want certain assets left to, you can also determine the manner in which individuals receive their inheritance.
Another aspect of estate planning is to put in writing the conditions under which your plan becomes effective, such as if you lose part of your cognitive functioning following a car accident or are in a coma for a few years. In these cases, you'll also designate the individual who will be responsible for your care.
Some terms to understand
It is often a misconception that estate planning is only for affluent individuals, but anyone can benefit from preparing for the future of their assets. It is an undertaking that should involve the help of one of our financial planners and your attorney for the legal aspects. During your meetings, there will be many new terms to digest. Here is a list to get you started:
- Will: This is a legal document that serves three purposes: It says who will inherit your estate and what parts each heir will get, nominates an executor to oversee the distribution of your assets and nominates a guardian to care for any children younger than 18. Certain assets, such as any that co-owned or have named beneficiaries, are unaffected by the terms of a will. A living will is used to determine what life-sustaining medical treatment you would want should you become unable to communicate your own wishes.
- Executor: This individual will make sure the terms of your will are adhered to, remaining debts are paid off and tax returns are filed.
- Probate: This is the court-supervised distribution of your assets. Your executor starts this process. If you die intestate - without a present will - the state appoints an administrator to handle the wealth transfer process, which can make the endeavor more complex and stressful for your family.
- Living trust: This legal document functions similar to a will, but not does require court involvement for distribution. Your assets are placed in the trust while you are living, and you name a trustee or trustees to manage them. After you die, the trust is left to your heirs.
Why estate planning matters
Many people don't leave a will or trust when they die. In this case, the court-appointed administrator could distribute your assets in a manner that is not consistent with what you would have desired, which can be especially problematic when factoring in personal property that has sentimental value.
Get started on your estate plan today. It will require some time to get your wishes documented, but after you get started, the revision process is easy. Make certain that you revisit your plan annually to ensure that it still reflects your desires and family structure. If, for instance, you have new grandchildren, you may want to add them to your will.
For more information on effective wealth management strategies, contact Landmark Bank.
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