“What's going to happen to your assets after you die? Your parents die? Your spouse dies? It's a conversation that's uncomfortable to have, but one that's extremely important.”
At its essence, estate planning is any decision you make concerning your property if you die, or if you become incapacitated. There are a number of things to keep in mind when creating an estate plan, says KTUU in the article “Estate planning dos and don’ts.”
The first task is not what most people think. It’s very basic: making a list of all of your assets and how they are titled. Remember, the estate plan is dealing with the distribution of your assets—so you have to first know what those assets are. If you are old enough to have lived through the sale of several different financial institutions, do you know where your accounts are? Not everyone does!
Next, you need to be clear on how the assets are titled. If they are joint with a spouse, Payable on Death (POD) or Transfer on Death (TOD), jointly with a child, or owned by a trust, they may be treated differently in your estate plan, than if you owned them outright.
Roughly fifty percent of all adults don’t make a plan for their estate. That becomes a huge headache for their loved ones. If you don’t have an estate plan, your property will be distributed according to the laws of your state. What you do or don’t want to have happen to your property won’t matter, and in some instances, your family may be passed over for a long-lost sibling. It’s a risk.
In addition, if you don’t have an estate plan, chances are you haven’t done any tax planning. Some states have inheritance taxes, others have estate taxes, and some have both. Even if your estate’s value doesn’t come anywhere close to the very high federal estate tax level ($11.4 million per person for 2019), your heirs could inherit far less, if state and inheritance taxes take a bite out of the assets.
For a blended family, there are a number of rules in different states that divide your assets. In Alaska, for instance, if some of the children of one spouse are not the children of the other spouse, there is a statutory formula that depends on how many children there are and which of them are living. Different percentages of money are awarded to the children, which becomes complicated.
Another reason to have an estate plan has to do with incapacity. This is perhaps harder to discuss than death for some families. Estate planning includes preparing for what the individual would want to happen, if they were injured or too sick to convey their wishes to others. Decisions about health care treatments and end-of-life care are documented with a Living Will (sometimes called an Advanced Care Directive), so your loved ones are not left wondering what you would have wanted and hoping that they got it right.
One last point about an estate plan: be sure to check beneficiary designations while you are doing your estate plan. If you own retirement accounts, life insurance policies, or other assets with named beneficiaries, the assets will pass directly to the named beneficiary, regardless of the instructions in your will. If you opened an IRA when you had one child and have had other children since then, make sure to include all of those children and the proportion of their shares. There may be tax implications, if only one child receives the assets, and there may also be family fights if assets are not distributed equally.
Reference: KTUU (August 14, 2019) “Estate planning dos and don’ts”