In the midst of buying baby clothes and preparing for the sleepless nights of new parenthood, estate planning may be far down on your list of priorities. You may not even fully understand what estate planning is. That’s OK. We’re here to help you consider the key aspects of estate planning, including:
- Drawing up a will that names a guardian for your child.
- Setting up a trust.
- Naming an executor of your estate.
- Designating beneficiaries.
- Setting up power of attorney.
- Making funeral arrangements.
For a variety of reasons, many of us overlook estate planning. But making a plan for your assets after your death will spare your loved ones from courtroom proceedings or an unnecessarily large tax bill. People who want to go beyond the basics with estate planning often work with an estate planning lawyer to craft a well-thought-out strategy.
The will and beyond
Your will can name a guardian for your child so the courts don’t have to. It can also handle the straightforward distribution of assets. Although drawing up your will is a big part of estate planning, the process doesn’t end there. Estate planning also includes:
- Setting up trust accounts in the names of the beneficiaries you named in your will. Think about whether you want to place your assets in trust accounts before your death, which will limit the amount beneficiaries will pay in taxes. Placing the assets in trust also allows your heirs to skip the probate court process.
- Naming an executor of your estate. This person oversees the process of carrying out your will, including the probate process; pays off your creditors and any tax obligations; and represents you in potential estate tax audits or legal disputes among your heirs. You should pick a trusted, responsible person who is close to you.
- Naming beneficiaries for assets such as 401(k)s, IRAs and life insurance policies. These assets require special consideration because they’re generally subject to ordinary income tax, rather than the estate tax paid on cash or other inherited assets. If you want to determine how much each of your heirs will receive — for instance, if you’re trying to divide your assets equally among your children — remember that a beneficiary on a $50,000 401(k) won’t receive the same amount as a beneficiary on a $50,000 savings account. Generally, you’re asked to name a beneficiary when you set up a 401(k), IRA or life insurance policy. Check who your beneficiaries are now, and periodically review them.
- Setting up durable power of attorney. A durable power of attorney is separate from medical power of attorney. Durable power of attorney allows you to choose someone to act as your agent if you become incapacitated; he or she will pay bills, make transfers and interact with official agencies on your behalf. A medical power of attorney specifically relates to health care decisions. Both are important parts of a solid estate plan.
- Making funeral arrangements. Make an affidavit of burial/cremation to outline your wishes for your funeral arrangements. Without this document, nearly every state gives the responsibility of choosing your funeral arrangements, and the ability to authorize an autopsy, to your legal next of kin. Although this may be fine with you, spelling out your wishes in advance can help your grieving relatives plan any memorial services and the disposal of your body in accordance with your wishes.
Drawing up a plan for your assets may not be the most compelling of tasks, but your loved ones will thank you for it. You can do many of these things yourself, using online legal tools. But as your estate gets bigger and your wishes more complex, you may need the help of an estate planning lawyer.
Your will should be a top priority when it comes to estate planning, as naming a guardian for your child and an executor of your estate is crucial. But designating beneficiaries, setting up a durable power of attorney and making funeral arrangements shouldn’t be forgotten.
Don’t fret too much over your task list — it’s a lot to take in. Move forward knowing that with each accomplished item, you’re ensuring your loved ones will be best cared for.