Many people are under the impression that estate planning is only for the rich. Perhaps the word “estate” throws people off. In actuality, anything you own, regardless of its worth, is part of your estate. Whether it’s a piece of property, a piece of jewelry, a stamp or coin collection, or a family heirloom; any item that can be inherited is considered part of an estate. This includes things that you have an investment in, such as stocks or real estate.
What Is Estate Planning?
Estate planning is preparing for the transfer of your inheritable items to your beneficiaries. This might just sound like a will but there is a difference between a will and estate planning. Both are legally binding documents, but estate planning is a broader term.
In a will, you can appoint guardians to loved ones, especially in the case if you have minors or elderly loved ones who need care. Through a will, your belongings will be distributed in the way that you wish. However, some things cannot be done through a will only. Estate planning includes a will and also includes trusts, power of attorney, beneficiary designation, taxes, and more.
Since it does cover a range of factors, we’ve boiled it down to 6 major things you need to know about estate planning.
1. A Trust
Besides a will, you also have the option to create a trust. A will takes effect once a person dies, while a trust takes effect once it is created. With a trust, the property can be distributed before, at, or after death. Only the belongings that are placed in the trust can be distributed. Trusts are helpful because property or finances don’t have to be transferred in one go. If you have young children, you want them to be cared for financially until they are old enough, a trustee is appointed to manage the trust. Usually, the trustee would be the spouse, but not necessarily. Another main difference between a trust and a will is that trusts don’t go through probate. To validate a will, it must go through probate court which is a long and tedious process. Since laws may vary from state to state, if you live in Atlanta, attorneys from Atlanta Estate Law Center specializing in estate planning and probate laws in Georgia can guide you through the process. It’s important to understand that without estate planning, your beneficiaries can get stuck in a tough legal situation that needs the help of an attorney to resolve it.
2. A Revocable Trust
Revocable trusts, also known as living trusts, allow the trustees mentioned in them to retain power of assets before a death happens. In this case, the trustee manages the assets for the benefit of the beneficiaries, even while you’re still alive. This means relinquishing some rights of the trust over to the trustee. The trustee becomes the legal owner of the assets, which leads us to our next point.
Most estates might be modest and won’t owe a federal estate tax. Since 2017, if your estate is worth $5.49 million or more, it will be taxed. Estate taxes are paid out of the estate, but there are inheritance taxes which are paid by beneficiaries. It’s a good idea to utilize the help of an attorney to explain in more detail how estates are taxed. During estate planning, it will become clearer to you what and what might not be affected by taxes on your estate.
4. Guardian Designators
This is a part of estate planning that could go unnoticed or taken for granted, who will care for your young children if you’re married. But there is an increasing number of single parents who don’t have a partner that can take this responsibility. So, they have to choose carefully who can and is willing to care for their children in case the parent can’t.
5. Financial Assets’ Designators
Your possessions can be transferred to beneficiaries that you don’t want because you left no specific names in your will or trust. If you don’t name beneficiaries, a court will do so after your death. You need to think about this and where your funds will go. It can be left up to the judgment of a court that might do things differently than what you would have wanted. Usually, funds like retirement or life insurance plans have named beneficiaries. Checking and savings accounts are also part of financial assets.
6. Power of Attorney
Estate planning isn’t only about what happens to property after death. For any reason, you might become incapacitated and cannot take matters into your own hands or handle your own affairs. Any person you choose can become your power of attorney, meaning it doesn’t have to be a lawyer. This person will make financial decisions on your behalf. While you’re alive and healthy, you can manage your own affairs. But anything can happen at any time. To feel more confident and secure about the future and what will happen to your loved ones and your assets, estate planning will put your mind at ease.