Estate Planning Basics

Estate planning might be the farthest thing from your mind, especially if you have a moderate to low income or net worth. In fact, many of us tend to view estate planning as something only rich people need to worry about, but in reality proper estate planning can make things easier for loved ones if you pass away unexpectedly and can also ensure that your wishes are carried out.

To start with, let?s establish what estate planning really is. You may not realize that it includes preparing a living will to handle tough topics like what to do if you are being kept alive by life support with no chance for recovery, as well as a traditional will to direct what happens to your personal property and assets, along with the guardianship of your minor children, if applicable. No matter how much money you have, these items are absolutely necessary.

If you have a high net worth, keep in mind that estates totaling more than $5 million will face hefty estate taxes under current law. This makes it essential to work with a trusted financial advisor to develop a plan that will shelter assets from taxes as much as possible.

For high net worth individuals who are married and have assets totaling $5 million or more, it can also be helpful to establish a credit shelter trust. This savvy investment move simply works to protect the assets of the first spouse to pass away, allowing the credit limit to be used.

Simply titling assets in joint name will not always help avoid probate, unless the joint account holder is your spouse. This means that assets held in joint name with a friend or relative are subject to the gift tax upon your death if the total value is more than $13,000. This amount is always subject to change, however, so be sure to stay current on changes in legislation.

Gifting assets to friends and relatives prior to your death is one of the simplest ways to whittle down your taxable assets. And as long as you stay within the gift tax exclusion limit, there will be no tax burden for anyone.

Also, make sure any retirement plans you own ? either individual or employer sponsored accounts ? have the proper beneficiary designations. For example, if your spouse has passed away, you will need to update the information and select a new beneficiary. If this person is not your spouse, be sure to look at whether or not the payout options are affected, and be sure to share this information with your new beneficiary.

Finally, no matter how much you are worth or how much you earn, selecting a good life insurance policy can make things much easier for those you leave behind. This is especially true for low to moderate-income households, where the expenses and loss of income associated with an unexpected death could cause bankruptcy, or at the very least, extreme financial hardship.

(Photo by iowa_spirit_walker)

Source: http://pfcents.com/estate-planning-basics/

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