Planning your estate involves determining who will receive your assets upon your death and who can act as your power of attorney if you become incapacitated. The goal of an estate plan is to reduce inheritance taxes and ensure your assets go to those you choose.
Before you start an estate plan, there are a few questions you should consider.
When is a plan necessary?
As soon as you start gaining assets, you should consider starting your estate planning. For example, you should have a plan in place if you have dependent children, real estate or other valuable assets.
What assets should you include?
Include every valuable asset, such as real estate, vehicles, collectibles and jewelry, in your plan. You can also discuss personal possessions that could cause a dispute. Include your financial accounts, stocks and bonds, life insurance policies, businesses, health savings accounts and retirement plans.
What taxes may apply?
The right estate plan should reduce or eliminate your heirs’ taxes. Therefore, research any applicable taxes. For example, some states impose inheritance taxes, and the federal government taxes large estates (greater than $12.06 million in 2022). Therefore, large estates may require different types of trusts to reduce federal and state taxes.
What designations are necessary?
You also need to designate who will care for minor children and manage your trust (trustee). Assign powers of attorney to trusted individuals who can make your medical, financial and other major decisions should you become incapacitated. Assign backup individuals in case your preferred person cannot fulfill these duties.
To ensure your desires are upheld, conduct research on the best plan for your estate and prepare to update your estate during major life events or when you sell or acquire additional assets.