Over 50% of our adult population does not have a current or up-to-date estate plan to protect themselves and their family's assets; that’s half your family, friends, and associates.
Estate planning is a financial process that can protect you and your family and is a very important component of your overall financial planning. Now is the perfect time to put your estate planning house in order. If you don't have an up-to-date estate plan and you happen to get hurt or sick and cannot manage your financial affairs, the courts will have to appoint someone to manage them for you. The person they appoint might not be the one you would want to perform those tasks.
Without an estate plan, when you pass away, your affairs will be settled by default through a complex legal system called "probate." The handling of your financial affairs can turn into a costly and frustrating ordeal for your family and heirs.
The crafting of a good estate plan starts with planning, followed by the proper drafting and signing of appropriate legal documents such as wills, trusts, buy-sell agreements, durable powers of attorney for asset management, and an advanced health-care directive or health-care power of attorney. Having these documents in place saves you and your family a lot of money and time at a very difficult and emotional time.
Your estate planning should also address the coordination of the way you hold title to your various assets, your beneficiary selections, and the possible transfer of certain assets while you are alive.
Regardless of the extent of your net worth, estate planning is important for everyone. Complex strategies may be used by wealthy people to reduce death taxes and costs. Others may only require a simple will and/or trust to pass on property to their heirs and provide for minor children.
Even if a simple will is all you require, an estate plan is an essential part of your financial planning. Everybody will need it someday. The time to address or update your estate plan is now.
1. DEFINE YOUR GOALS: What do you want to happen to your assets in the event of your death or disability? If your beneficiaries predecease you, who are your alternate selections? How will your assets be distributed, and when will these distributions take place?
2. GATHER & ORGANIZE YOUR DATA: There are three basic tasks to be accomplished:
3. ANALYZE YOUR SITUATION: Start by determining your current net worth, assuming your death occurred today. This can be done by totaling your current assets and liabilities, and adding the value of any life insurance.
Try sketching a picture or flow chart of your existing estate plan. Review your appointees:
On January 2, 2013 President Obama signed the American Taxpayer Relief Act (ATRA) into law. Many of the temporary provisions from prior tax acts were made permanent ending much confusion and speculation.
Federal Estate, Gift and GST Taxes − The estate tax, gift tax and generation skipping tax exclusion amounts are all set at $5 million and indexed for inflation after 2011. For 2016 the exemption amount is $5.45 million.
The top estate, gift, and GST tax rate is increased from 35 % to 40%.
Portability − Beginning for taxpayers dying after Dec. 31, 2010 the estate tax exclusion becomes “portable” between spouses. This means that the surviving spouse’s exemption is increased by any exemption not used at the first spouse’s death. However, this is not automatic; it must elected by timely filing a 706 estate tax return.
Carryover Basis − For most capital assets transferred at the time of death the beneficiary receives a “stepped up” basis to its fair market value at the date of death.
Check with your financial advisors for updated information.
4. DEVELOP YOUR STRATEGIES: With the assistance of your estate planning advisor(s), identify the legal documents that need drafting or make any necessary adjustments to existing documents. Determine any other actions that must be taken for your wishes to be carried out.
5. IMPLEMENT YOUR PLAN: Do what needs to be done -- i.e., create new wills, trusts and powers of attorney, adjust title to your properties, change alternate beneficiaries of retirement plans and life insurance policies to trusts.
6. TRACK & MONITOR YOUR PROGRESS: Check your estate plan annually or any time there are changes in your family situation or net worth. Use your financial planning calendar to schedule your next review.
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In support of the Improving Financial Awareness & Financial Literacy Movement & Campaign built around National Financial Literacy Month (April) and six months later during National Estate Planning Awareness Week (3rd week in October) the following estate planning article contains a very important message.