What is Estate Planning?
The term”estate planning” is the process of preparing tasks to control the financial position of an individual should incapacitated death or incapacity. The plan includes the bequest of property to the heirs, and an agreement to settle estate tax and debts, in addition to other aspects like guardianship of minors as well as pets. The majority of estate plans are set with the help of an experienced attorney who is knowledgeable about estate law. A few of the steps in estate planning generally include listing debts and assets review of accounts, as well as the preparation of wills.
This is known as the Estate Planning Process
Estate planning is the process of the process of determining how assets will be protected as well as managed and distributed in the event of their passing away. It also includes the administration of a person’s property and financial obligations should they are incapacitated. Contrary to what many think, this isn’t an instrument only for the wealthy. Actually, everyone is able to and should think about estate planning.
Assets that constitute an estate could include homes vehicles, houses, stocks art and pensions, life insurance and other debt. There are many reasons to creating an estate plan including preserving family wealth, ensuring the children and spouse of a deceased partner or their grandchildren’s education, or leaving their legacy to an organization that is charitable.
Making a Will
A will is an official document that gives guidelines about how an individual’s estate and the custody of children (if they have any) will be dealt with following the death. The will outlines the wishes of the person and specifies a trustee or executor who they trust to carry out the intentions they have stated in.
The will also specifies whether trusts is required following the death of the trustee. Based on the estate’s plans, trusts can be in existence during their lifetime by way of an existing trust or the creation of a testamentary trust upon their death.
The validity in a will can be established by a legal procedure called probate. Probate is the initial step in taking care of the will of an deceased individual and disbursing assets to beneficiaries. If a person dies, the person who is the custodian of the will must submit it to the probate judge or the executor specified on the document within thirty days following the date of death of the deceased testator.
Probate is a process that is controlled by the courts that ensures an authentic will that is left behind is confirmed as valid, and recognized as the genuine last will and testament of the dead. The court formally appoints the executor listed in the will. This is then granted executors legal authority to perform the duties that of the decedent.
Designating the Right Executor
The executor or legal personal representative appointed by the courts is accountable to locate and supervise the entire estate of the deceased. The executor must estimate the value of the estate using dates of the death or alternative valuation date as specified in the Internal Revenue Code (IRC).
Most assets subject to probate administration fall under the control by the court that administers probate of the location where the deceased resided at the time of death. There is an exception with real estate, which has to be administered within the county where it is situated.
The executor is also required to pay any taxes or debts owed by the deceased estate. Creditors generally have a specific period of time starting after they were informed of deceased’s death to claim against the estate to recover funds due to them. If claims are denied by the executor may be taken to court, where the probate judge has the final say in whether or whether the claim is legitimate.
The executor is also accountable to file the final personal tax returns for the deceased. After the appraisal of the estate is taken and the value of the assets determined, and the tax and debts paid the executor must get permission from the court for the distribution of what remains from the estate beneficiaries.
Planning for Estate Taxes
State and federal taxes that are applied to estates may significantly decrease its value prior to when the assets are transferred to beneficiaries. The death of a loved one can create huge debts for the family which requires generational transfer strategies to cut down, eliminate, or delay tax obligations. There are important steps during the estate planning process that married couples and individuals can adopt to lessen the burden of taxes.
A-B Trusts
For married couples, for instance could set up an A-B trust which splits in two following an individual dies. spouse who died first. The trust A serves as the trust for the survivor while trust B is the trust of the deceased. Every person puts their trust assets in trust and name someone who is not their spouse the trust’s beneficiary.
Strategies to Fund Education
A grandfather could motivate his grandchildren to go to higher education or college degrees and, as a result, transfer assets to an organization like 529 plans, for the purposes of future or current educational funding.
This could be a more tax efficient option than transferring those assets following death to finance college in the event that the beneficiaries are college age. The former could cause a variety of tax issues which can significantly limit the amount of funds that is available to children.
Reducing the tax effects of Charitable contributions
Another approach that estate planners could employ to limit the tax burden of an estate upon death is to donate to charities when they are alive. These gifts decrease the size of the estate as they are not part of the tax-exempt estate, thereby less tax on the estate.
This means that the donor will pay a lower price of giving, which gives more incentive to make donations. Of course individuals may want to donate to many causes. Estate planners can collaborate with the donor to minimize the amount of tax deductible income from these donations or develop strategies to increase the impact of these contributions.
Is Estate Planning just for the wealthy?
There’s a belief about estate planning being just intended for those with high net worth. However, this isn’t the case. Actually the process of estate planning can be a tool everybody can utilize. Estate planning can make it easier for people to establish their preferences prior to and following they pass away. Contrary to what many think, it goes beyond what you can do with your the assets or liabilities. In reality, estate planning can provide answers to questions concerning the guardianship of pets and children, what to do when it’s time to have your funeral, and the charities you would like to donate your money to after your death.
The Bottom Line
Estate planning is typically considered to be an option for the wealthy. But this isn’t always the reality. It could be a great method to manage your liabilities and assets prior to and after your death. Estate planning can also be an excellent way to outline your strategies for taking management of your pets and children, and to write out your wishes for your funeral as well as your favorite charities. However, don’t think of writing a will as estate planning. It’s just part of the process you’ll have to complete when you’re planning your estate. While you’re at it ensure you choose an executor with a track record and check your financial statements regularly to ensure you’re getting best value for your money.