Estate Planning 101: Securing Your Legacy and Your Loved Ones’ Future

An estate plan can give you and your loved ones peace of mind and guarantee your wishes are respected. ESB Professional/Shutterstock

Building a life you’re proud of has taken a lot of work. Now’s the time to make sure your legacy lives on.

Whether you’re a seasoned investor or even just getting started, estate planning is absolutely necessary. It’s not just for the wealthy or the elderly. Instead, it’s for everyone. An estate plan can give you and your loved ones peace of mind and guarantee your wishes are respected. Moreover, it ensures your assets are distributed according to your wishes.

Here, we’ll discuss the basics of estate planning, including wills, trusts, and other important considerations. So, let’s get started.

Estate Planning: What’s the Big Deal?

Estate planning is more than just what happens after you pass away. The goal is to set yourself and your loved ones up for success while you’re still alive. Additionally, it gives you peace of mind knowing that your affairs are in order. You’re also protecting your loved ones from unnecessary stress and your hard-earned dollars from Uncle Sam.

In a nutshell, estate planning is about control.

Estate Planning Basics

You may feel overwhelmed by estate planning, but breaking it down into bite-sized chunks can make it easier. Here’s where to begin:

Work With the Experts

Regarding estate planning, a good attorney and a tax advisor make the perfect team. An attorney can assist you in creating essential documents such as a will, a healthcare proxy, and a durable power of attorney. It is your tax advisor’s job to ensure Uncle Sam does not take more than he should.

If you are looking for an estate law or financial advisor, start by checking their credentials. You can also get recommendations from friends, family, and professional networks and read reviews to ensure they’ve done well in the past. In addition to guiding you through decisions, these professionals will help you communicate your wishes clearly and adjust your plans as life changes.

Yes, hiring these professionals costs money. However, I can promise you’ll save money and enjoy peace of mind in the end.

Maximize What You Leave Behind

This is the name of the game. By minimizing taxes and court costs, you can work with your advisors to maximize your assets for the people (or causes) you care about. Whether it’s a retirement account or a piece of real estate, every asset has its own rules. Therefore, it’s crucial to have an informed plan.

Taxes: The Necessary Evil

Ah, taxes. To leave more behind, you must minimize taxes as part of your estate planning. Let’s take a look at what you need to know about taxes:

• Estate tax. Over a certain amount, this federal tax kicks in. However, if the value of the estate exceeds the exemption limit, you will be charged.
• Inheritance tax. Some states impose a tax on the person inheriting your assets.
• Gift tax. This tax is applied to gifts exceeding a certain amount. The good news is that you can give up to a certain amount tax-free every year, which makes passing along wealth easier.

Suppose you own a $15 million estate in a state with both federal and state estate taxes. In 2024, if the federal exemption is applied to the $13 million, the remaining $2 million may be subject to federal tax rates as high as 40 percent. If the state also levies a 10 percent estate tax, the combined taxes could easily exceed $500,000. Unless you plan properly, your heirs may receive a significantly reduced inheritance.

The Key Documents of an Estate Plan

Estate plans are only as good as the documents backing them up. As such, listed below are the essentials:

• Guardianship provisions. If you have children or dependents, you must specify who should care for them. Usually, these instructions reside in your will, but they’re extremely important.
• Will. Your will details how you wish to distribute your assets and ensures they are distributed according to your wishes.
• Trust. The super-wealthy aren’t the only ones who benefit from trusts. You can use them to manage how and when you distribute assets, avoid probate, and even reduce taxes.
• Powers of Attorney (POA). A financial POA entrusts someone with your finances if you cannot do so yourself. Furthermore, a durable power of attorney stays in effect even if you become incapacitated.
• Advance Healthcare Directive. You can designate someone to make healthcare decisions on your behalf if you need them by combining a living will and a medical power of attorney.
• HIPAA Authorization. When necessary, this provides designated individuals with access to your medical records.

Your Beneficiaries Are Key

You often need to designate beneficiaries on your retirement accounts and life insurance policies, which frequently override your will. If, for example, your will leaves everything to your spouse, but your 401(k) names your sibling as the beneficiary, the funds are transferred to your sibling. You should ensure these designations are up-to-date and aligned with your long-term goals. Just in case, name contingent beneficiaries as well.

Also, consider setting up transfer-on-death (TOD) or payable-on-death accounts for your bank and brokerage accounts. As a result, your heirs can access funds more quickly since they can bypass probate.

Life Happens—Keep Your Estate Plan Updated

Marriage, divorce, births, deaths, and career changes all impact your estate plan. Imagine, for example, that you recently welcomed a new child into your family. If your estate plan isn’t updated, this child might not be named a beneficiary, unintentionally being excluded from inheriting assets.

You should update your wishes regularly to ensure they are current. When you forget to update your insurance, you might find yourself with awkward (and expensive) outcomes, like receiving your life insurance payout from your ex-spouse.

Lowering Your Heirs’ Tax Burden

Next, let’s talk about reducing taxes:

• Giving while you’re alive. The amount you can gift tax-free in 2024 is $18,000 per person. In 2025, it will rise to $19,000. As a result, your heirs gain an advantage, and your taxable estate is reduced.
• Roth IRA conversion. You may leave hefty tax bills to your heirs if you choose to leave traditional IRAs. If you convert to a Roth IRA, your heirs will inherit tax-free funds.

How to Create an Estate Plan

So, you wanna get your affairs in order, huh?

Estate planning may seem daunting, but it has many benefits for ensuring your family’s well-being. To help you get started, here’s a simple 12-step guide:

• Make a list of what you own. You should list everything you own, including your cars, houses, jewelry, and that weird collection of antique spoons you have.
• Ensure the safety of those you love. If you wish to keep your family financially secure after you pass away, you may want to ensure they are named in your plan.
• Take a look at your options. Choose the kind of estate plan that suits you best: a will, a trust, or a combination.
• Pick your people. Name a guardian for your kids or pets. Ideally, you should choose someone you trust to make medical and financial decisions if you can’t.
• Organize your documents. Give someone legal authority to act on your behalf by creating a durable POA. You should also make a medical care directive stating your healthcare preferences. Also, consider using a limited power of attorney (LPOA) for specific situations.
• Name your beneficiaries. Be sure that beneficiary designations on retirement accounts, life insurance policies, and other assets are up-to-date. If your primary beneficiaries can’t inherit, consider naming contingent beneficiaries.
• Find a trusted advisor. To create your plan, consult an attorney or another qualified professional.
• Put pen to paper (or click a button). If you draft your estate plan, you can use online tools or hire a professional.
• Make it official. Ensure you follow your state’s specific requirements when signing and notarizing your documents.
• Let your executor know. Let the person you have chosen to handle your estate know their responsibilities.
• Store your documents safely. Your estate plan should be stored in a secure, fire-resistant location.
• Keep it updated. Keep your plan up-to-date every few years or whenever life changes, such as marriage, divorce, birth, or death.

Common Estate Planning Pitfalls to Avoid

No matter how good your intentions are, mistakes are inevitable. The following are the big ones to avoid:

• Don’t wing it. Make an estate plan in writing.
• Stay up-to-date. Keep your plan up-to-date by regularly reviewing it.
• Plan for incapacity. Ensure you have a plan in place if you cannot decide for yourself.
• Simplify asset ownership. You can make it easier for your loved ones to inherit your assets if you plan ahead.
• Consider charitable giving. Consider making charitable donations as part of your plan.
• Appoint guardians. If you have children or dependents, choose guardians for them.
• Understand the tax implications. You should be aware of the potential tax consequences.
• Ensure liquidity. To cover expenses, ensure you should have enough cash or liquid assets.
• Use lifetime gifts strategically. With thoughtful gifting, you can reduce your taxable estate.
• Avoid joint ownership pitfalls. Be aware of the tax implications of joint ownership.

Using these steps and avoiding common mistakes, you can create a comprehensive estate plan that protects your family and preserves your wishes.

The Bottom Line

Estate planning doesn’t have to be scary. It’s actually a smart move. After all, taking control of your future and protecting the ones you love are two of the most important things in life.

Now that you know what to do, what are you waiting for? Today is the day to start planning your legacy.

By John Rampton

The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.