Death and taxes — they’re the only two guarantees we can expect out of this crazy life. While we’re all aware of the ramification of tax season every year, most of us don’t put enough effort into planning for our, will, deaths.
Estate planning tips may seem morbid, but they’re essential. They can help protect your family after you’re gone. That’s a peace of mind worth investing in.
Let’s get into what you need to know.
#1. Always Have a Will
It doesn’t matter how old you are. It doesn’t matter if you only have a few dollars to your name.
If you have any semblance of assets or dependents, then you need a will. Without one, your estate will be divided and distributed based on your state’s particular laws. This essentially means that the state decides what happens to your hard-earned money!
Not having a will can also be disastrous if you have children under age 18. At that point, the court will have to decide who will take care of your children.
You should always name a guardian and appoint a trusted person as the executor of your estate.
#2. Establish a Trust
A trust refers to the fiduciary agreement that enables a trustee to hold assets on behalf of a beneficiary. Contrary to popular belief, trusts aren’t just for wealthy people!
With a trust, you have more control over your wealth. You can specify the terms to your liking. And you can control when and to whom you make the distributions.
Your trust can help protect your estate from creditors or beneficiaries who have lackluster money management skills.
Without a trust, possessions must go through probate. Probate, by nature, is a costly and time-consuming process.
It’s also a matter of public record. However, your family can bypass probate if you have a working trust in order.
#3. Engage in Buy-Sell Arrangements
If you are part of a business or partnership with multiple owners, you need a buy-sell agreement. This contract outlines how interest gets redistributed in the event of your death.
There are different varies of buy-sell agreements. Each of them allows owners to redeem the stake of the deceased owner. The contract also owners to specify how the value of the business will be determined.
#4. Buy Life Insurance if Necessary
Life insurance can protect your spouse and children if you are the primary breadwinner in the family.
However, life insurance shouldn’t only be for breadwinners. Income loss can still occur for surviving, nonworking spouse.
For example, working breadwinners will likely have to spend more for childcare and other household responsibilities. Thus, a good estate plan involves looking into all the potential financial barriers that could arise.
#5. Plan Your Digital Assets
Yes, identity theft can still happen long after you die. And, yes, you need a plan to safeguard you and your family from this crime.
Digital asset planning can help. State contract law and contract agreements dictate that your digital accounts become nontransferable after death. However, many states allow you to name a fiduciary who will access and manage your accounts upon your death.
Digital assets don’t just include your bank and investment accounts. They include everything you do online — including your social media profiles, email, and personal websites.
This is one of the most overlooked elements in estate planning. However, it’s one of the most important ways to prevent hacking and financial devastation.
#6. Convert After-Tax Contributions
Want to stash away more than the standard 401(k) deferral limit? You may be able to make non-deductible contributions to your retirement plan. Like a Roth contribution, these contributions are funded with money that you have already paid taxes on.
This isn’t available for all 401(k) plans. Check with your plan administrator or HR representative to see if it’s a viable option.
If it is, all earnings in the Roth account are tax-free. Thus, the entire distribution becomes tax-free in retirement. This becomes a fantastic way to store extra money for your family — without the associated taxes.
The only downside to this strategy to consider? Because your money is tied up into a Roth account, it may be harder to access due to the current tax penalties associated for early withdrawal.
#7. Update Your Documents
You should check and update will and trusts every year or after any significant life events. These life events can include marriage, the birth of a child, and divorce.
The documents must be in good, current standing if you want them to be executed appropriately. Don’t forget to have your spouse update his or her documents as well.
In the event that you both die, it is essential that you have a plan for what you want to happen to your estate.
#8. Consult with a Professional
If you have a complicated estate, it’s always best to consult with an attorney to make the best plan for your future.
After all, you’ve spent many years working hard for your money. You want it to go into the right hands after you’re gone. An attorney can make sure that your goals are met adequately.
Final Thoughts on Estate Planning Tips
With the right estate planning tips, you can provide you and your family with invaluable peace of mind for the future.
While death isn’t necessarily a fun topic to discuss, it’s essential that you can financially prepare your loved ones to prosper — with or without you.
Are you interested in learning more about getting your financial life in order? Check out this comprehensive guide today!