Poor estate planning often creates difficulties for surviving family members. Making careful arrangements in advance can prevent problems resulting from missing documents, unclear directives or insufficient tax planning. Here are five easy steps that will save your family a lot of hassle and potential conflict in the future.
1. Update & Organize Your Documents
Missing or outdated documents may result in your assets not being distributed as you intended. Losing a loved one is stressful enough, and sorting through a messy stack of documents to make sense of your assets, just makes it worse. Keep documents, including your will and a list of relevant accounts and any passwords, organized and make sure your family knows where to find them.
2. Create a Will (if You Haven’t Already)
A will is the foundation of an estate plan, yet some individuals never get around to writing one. If they write a will and never revisit it, it becomes outdated. For example, they may not update their will following a marriage, divorce or birth of a child. Or the will may name an executor who either refuses to serve or is unable to do the job well. If you make updates to your will, make sure you only keep the most recent and relevant version. Having multiple copies of a will can cause confusion for your family and may require court proceedings to determine which will is valid.
3. Title Your Assets
The way you title your assets is also important. As an example, life insurance proceeds become part of the policy owner’s estate. Having someone else (or a trust) own the policy can separate the insurance money from the estate. If you haven’t done so already, have a financial advisor conduct a review of your assets and examine how each is titled.
4. Designate Beneficiaries
Many individuals fail to change beneficiary designations for their 401(k), IRA or other retirement assets following changes in their family situation. Simply reviewing and revising your beneficiary choices periodically can prevent potential estate problems.
5. Plan for Taxes
If you have a substantial estate, taxes may be a costly issue. The federal estate tax exemption amount is $5 million, indexed for inflation after 2011 ($5.49 million for 2017). The highest tax rate is the estate tax rate at 40%. If you fail to plan for the possibility of estate taxes affecting you in the future, you may unnecessarily compromise your family’s inheritance.