The average life expectancy in the United States in 2020 went down between 1.5 and 3 years lower than any previous year since 1943. Three-quarters of those premature deaths can be attributed to COVID-19 – most world leaders and the majority of Americans were caught off guard by the emergence and rapid spread of the virus globally.
Beyond COVID, deaths attributed to other conditions rose across the country. Death rates for Alzheimer’s, heart disease, cancer, and diabetes, just to name a few, killed far more Americans in 2021 than was typical in a pre-pandemic year. It's a stark reminder of the fragility of life and the need to prepare for the worst.
During these difficult times, preparing your finances for the unexpected is prudent, including how you would like your estate handled if you become incapacitated or, worse, have your own life cut short.
What Is Estate Planning?
Estate planning involves establishing and maintaining a plan for who will receive your assets after you pass away. Many important documents are required. It’s a stressful time when a family member dies—having a solid estate plan can ease the burden.
Estate plans help incapacitated people too. Moreover, estate planning also includes other items and general last wishes. Estate planning is important because it determines how your assets will transfer after your death.
Common documents and products include a will, trust, insurance policies, and healthcare-related forms. Creating an estate plan with an experienced financial planner is critical to avoid headaches after you pass away. New laws, regulations, and financial products make estate planning a complex area of long-term planning.
Just about everything you own falls under the term “estate.” To begin, write down a list of all your assets. Knowing what you own and its total value helps a financial planner strategize the optimal estate plan for you.
What’s ideal about financial accounts is that you can name a beneficiary to whom a specific account will go upon your passing. That makes executing that portion of an estate plan easy. Other non-financial assets pass through to your heirs based on how your will is constructed.
The Benefits of Working With Experts
Due to the financial complexities and legal implications involved, many people choose to work with financial advisors and attorneys knowledgeable in estate planning.
The advisor must understand the laws and regulations and your desires. They are responsible for ensuring your wishes are carried out efficiently while minimizing tax liability and following all state and federal rules. A financial advisor who deals with estate plans each day can help individuals and families spot potential landmines in the process.
Another option is teaming up with a lawyer who specializes in estate planning. Attorneys create complex legal documents and contracts for those with large estates.
“A good financial advisor with experience in estate planning helps set the stage for the work an estate planning attorney will do,” said Tom McAuliffe, Relationship Manager with Heritage Family Offices.
“The financial advisor helps clarify goals and intentions and can tell you if these are viable based on a financial analysis and plan. Then the estate planning attorney can do their work drafting final plans, including documents and the appropriate trusts.
“In the financial planning process, your advisor will help determine the appropriate life insurance coverage and savings strategies to achieve goals during your lifetime and fund legacy goals,” said Emily Rassam, Senior Financial Planner with Archer Investment Management.
“An estate planning attorney will then view the scenario and determine if trusts are appropriate to execute your wishes or optimize your taxes and the language needed in your documents to match your intentions. Consider asking your planner to attend the meeting with your estate planning attorney if you’d like guidance on communicating your wishes and syncing it to the planning work developed.”
Get To Know These Common Estate Planning Documents
The best way to develop an estate plan is first to understand what documents you need to complete. Putting in writing what you want to happen if you become incapacitated or if you pass away can take care of much of the estate planning process. A financial advisor helps guide this process too.
Last Will and Testament
A will is the foundation of an estate plan.
Most people know they should have a will, but the majority of Americans do not. According to a 2020 Gallup survey, just 45% of U.S. adults reported having a will. The document outlines to whom your assets will go upon your death. A will is not a ‘set it and forget it’ estate planning document – it must be maintained just as a financial plan is updated as life events happen.
Naming an executor of an estate is a critical component of your last will and testament, too.
Finally, individuals should be aware that the will is made public through the probate process, so be thoughtful about what is included in the document.
Power of Attorney Form (POA)
There are two types of POAs: Financial and Durable. A Financial POA allows someone to control your financial accounts when you are unable to do so. A Durable POA goes into effect when someone becomes disabled in some way and cannot act personally.
Advanced Healthcare Directive (AHCD)
An AHCD, or Medical POA, outlines what healthcare-related actions should be taken if you are unable to make decisions.
Trust Documents
Trusts allow you (the Grantor) to give someone else (a Trustee) control over how assets are invested and held for the benefit of a third party (a Beneficiary). When constructed properly, assets in a trust avoid both probate and estate tax liability.
Beneficiary Forms
These exist for all your accounts, including IRAs, 401(k)s, and brokerage accounts often offer short forms to accomplish this estate-planning task. Financial accounts with a named beneficiary efficiently transfer upon your passing. Check accounts have a “transfer on death” option as well.
Guardianship
What happens with your children and other dependents is more important than money. No estate plan is complete without a directive on who will care for your loved ones when you pass away. Guardianship is commonly outlined in a will.
Estate Planning Can Help Reduce Your Taxes
Minimizing or eliminating your estate tax is among the primary goals of crafting and strategizing an estate plan. For individuals with a net worth above the federal estate tax exemption, the so-called “death tax” can cost millions.
Ultimately, you want to ensure your heirs receive as much of your assets as possible. A savvy financial advisor helps individuals and couples create an optimal estate plan—that includes taking tax minimization actions years in advance of retirement.
Get Started On Your Estate Plan Today
Everyone needs an estate plan. Many employers offer estate planning services in their benefits packages—check with Human Resources at work to see if that’s the case for you.
While your net worth might be well under the exclusion amount today, decades from now, that may no longer be the case. Compounding returns, business growth, and even federal tax laws might change your situation. Getting started today can prepare you for an easier tomorrow.
Taking time today to craft an estate plan helps ease your loved ones’ burden after you pass away. A solid estate plan outlines who will receive what after you die, and includes directives on what actions to take if you become unable to act on your own. Working with an experienced financial advisor on an estate plan is a valuable and prudent move in the financial planning process.
More Articles From the Wealth of Geeks Network
- Nearing Retirement? A Retirement Advisor May Be Right For You
- How Much Does a Financial Advisor Cost?
This article was produced by Wealthtender and syndicated by Wealth of Geeks.
source https://wealthofgeeks.com/estate-planning/
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