Estate planning is a vital part of managing your personal finances. Every adult should have a will and make arrangements for their estate, no matter its size. However, it’s also important to consider just what you will leave behind. If you want to leave a legacy for your children, you need to make sure that you have something to leave them. Even when you think you’re leaving them an inheritance, they could end up with very little. For example, there could be a number of expenses that need to come out of your estate. Perhaps they will need to use your money or assets to pay for your funeral or cover legal costs. As well as taking care of what will happen to your estate, you can plan to grow it too.
Considering What an Inheritance Will Mean
Before you start thinking about your estate, you should think about what it will mean to leave an inheritance for your children. Parents usually select their children as the main beneficiaries of their estate. Although, there are exceptions. However, there are some issues that may concern you. They are especially important because you can’t predict when you might pass away. Perhaps in the future, your children will be able to sensibly manage any money or assets you leave them. But currently, they might be unprepared for that. You want the inheritance to benefit them. But you don’t want it to remove all their ambition and initiative. If you want to leave them an inheritance, think about whether you want to place any conditions on it. You might even consider whether it’s the best choice at all.
Estimate Your Income Needs for Retirement
If you’re planning to leave an inheritance for your kids, you can be at risk of having nothing to give them. Even if you want to leave them something, badly planned finances can scupper your wishes. One of the things people can do wrong is to underestimate how much money they will need in retirement. They assume there will be money left over to give to their kids but then need it for their own living costs. It’s essential to make sure that you try to have an accurate figure for your needs. Of course, it is difficult to work it out exactly if your retirement is far away. The cost of living will be different when you retire, and you don’t know the details of your future lifestyle. But you can come up with a budget that helps you get a better picture.
Remember to Consider Care Costs
It’s an unfortunate fact that we all have to consider the cost of health care when we are older. Even the healthiest of seniors will have to deal with everyday illnesses, as well as aches and pains. We can’t predict whether we will experience more serious health conditions. They can range from dementia to the many cancers that affect the elderly. Some people end their life requiring full-time care, which will always be expensive. What’s more, the cost is rising, so it’s essential to be prepared. There are several ways to get ready for this, including insurance, savings, and investments.
Another expense you might want to ensure you don’t get caught by is estate tax. At the federal level, only very few estates will be subject to this tax. Anyone who earns under $5.45 million in 2016 is safe. However, a number of states have their own estate tax rules, which can have much lower thresholds. For example, estates in New Jersey over $675,000 are subject to taxation. Just 15 states have their own laws, but it’s essential to check if yours is one of them. Six states also have an inheritance tax. Make sure you understand how each of these work if your estate will be subject to them.
Choose Investments Carefully
Many people make a variety of investments when building their retirement fund and estate. You may wish to pass assets you have invested in to your children. Perhaps you even want them passed to your grandchildren too. If this is the aim you have in mind, you need to make investments that will last over these generations. In fact, you want investments that will grow over these generations. So they will retain and build their value. It’s important to consider inflation and growth when choosing investments.
Gifting Assets While You Are Alive
Before you deal with creating a will, you might want to consider something else. One option is to gift assets to your relatives or friends while you are still alive. There are a few benefits to this, including that you can ensure your assets go directly to who you want to have them. As well as giving them to people, you might choose to make gifts to organizations, such as charities. Some gifts will qualify for gift tax, so you won’t have to pay tax on them or file a gift tax return. If you want to give a gift to a child, there are a few channels you might want to use. Some people are able to set up a custodial account so that earnings on the account are taxed at a lower rate. You can also consider a joint account or savings bonds.
Understanding Probate Law
Before you set up a will, you should make sure you understand the laws surrounding probate. It will help you to realize the importance of estate planning and work out the best approach for you to take. If you want to understand probate, you need to find out what the rules are for your state. Each state differs in its laws, so you need to ensure that any advice you read is relevant to you. There are lots of things you need to consider, both if you do and don’t have a will when you pass away. The laws of intestacy will dictate what happens to your estate if there is no will. For some people, this may be an acceptable outcome. But most people are likely to have some desires that differ from the standard process. See an example of intestacy laws for New York at nycourts.gov.
Another factor to consider for probate is the cost. Probate can cost a significant percentage of your estate, so it’s important to prepare for it. Your heirs have to pay for legal representation, admin fees and other costs that might arise. Making sure they are covered by what you leave them will help to make things easier. There are also some ways you can get around some of the fees. For example, transferring property to a trust helps people to bypass the probate process. Make gifts while you are still alive is another way to avoid probate.
Drawing Up a Will
Although your estate will still go through probate without a will, it is essential that you create one. You will have more control over what happens to your assets. Although, there is still a possibility that someone will challenge your will. When writing your will, it is possible to simply use a template you find online. However, if you want to do it properly, you should work with a lawyer. Visit a site like toomuchatstake.com to understand more about the process of writing your will. An attorney will help you make sure you cover all the important issues. If you go the DIY route, you could easily make a mistake.
You’ll need to think carefully about who gets what and how you will express your wishes. Deciding how to distribute your estate can be a matter of both finances and family politics. There can be some thorny issues to navigate when you’re trying to decide what is best. A lawyer will at least ensure that you do everything legally.
Creating a Trust
Sometimes, you may wish to create a trust for certain circumstances. They are most often used for children who are minors or have special needs. You can use one to place conditions on how and when the inheritance you leave can be used. If you want to create a trust, you should use a lawyer for this too. You can usually work with the same lawyer who helps you create your will. You might use a trust to ensure that your children can’t use their inheritance until they are a certain age. You could also use it to ensure that the money is used to pay for their care. Trusts can also be useful tools for managing tax and fees.
Leaving a Legacy with Life Insurance
Another thing you might want to consider is a life insurance policy. While it’s not technically an inheritance, it is often very useful. If you are supporting your family, your death could devastate them financially. Having life insurance helps to mitigate the danger of financial problems. You should ensure that you have a good life insurance policy that will help your family for at least the first couple of years following your death.
When planning your estate, it’s essential to ensure you will still have one when you die. Don’t consider just the planning, but the contents of your estate too.