An estate plan protects your family and finances after you die. Your first step in estate planning is to write a comprehensive will that moves smoothly through the probate process. Make sure you're aware of current estate taxes that may influence your planning and how insurance factors into your estate plan. Various types of trusts are available; do some research to find out if setting up a trust is the way to go, and consider some special circumstances that may arise and how they can affect your estate planning.
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Things to Remember When You're Writing Your Will
Basically, probate is the method by which your estate is legally transferred after you die. When planning your estate and writing your will, keep these tips in mind to help the probate process run smoothly:
You can be both specific and general in your will — it's up to you. You can parcel out individual items to people by name and also let your beneficiaries decide how to divide up your worldly goods.
State law does have something to say about the language of your will, however. Your state has a number of will statutes that may override a provision of your will if you say something that's against the law.
Certain parts of your will "self-adjust" to changes in your estate and your family. For example, even if you don't update your will after a child is born or if you adopt a child, your will covers the child just the same so that the child isn't accidentally cut out of an inheritance.
You can get around much of the time-consuming, inconvenient, and costly process called probate by creating trusts and using will substitutes, such as joint tenancy with right of survivorship and payable on death accounts.
If you own real estate property in another state, like a time share by the shore, you may need to worry about going through probate in that state, too.
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Estate-Related Taxes You Need to Know About
Depending on the value of your estate, you may not have to deal with at least some of the federal taxes, but you or your surviving beneficiaries may have a substantial amount of tax-related paperwork to file. When estate planning, use these tips to understand what you're dealing with from a tax standpoint:
Most people don't have to pay the federal estate tax — the so-called "death tax" —because their estates fall below the federal threshold. But your estate may still be subject to state inheritance or estate taxes.
The federal gift tax and the federal estate tax are part of a unified tax system, so you need to pay attention to both of these taxes as you plan your overall estate tax strategy.
The little-known Estate Recovery Act can devastate your estate if you need to tap into certain types of government-paid health care. But you can protect your estate if you understand the rules.
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Factoring Insurance into Your Estate Plan
Insurance is vital for estate planning: It helps protect your current property, things you hope to attain in the future, and the gifts you hope to leave behind. Take a look at how insurance affects your estate and what types of insurance to consider for your estate planning:
Life insurance is a critical part of your estate planning, so make sure that when you purchase a new policy or change an existing one, you look at the rest of your estate planning to get the most benefit from your life insurance.
Many estate-planning advisers concentrate on life insurance. But you need to factor in many other types of insurance, such as the liability portion of your automobile and homeowner's insurance.
Your life insurance policy may be an estate tax trap if you don't take appropriate measures, such as setting up an irrevocable life insurance trust.
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Setting Up a Trust in Your Estate Plan
Trusts can be a great help in your estate planning — they can protect your property, save on estate taxes, and help you avoid probate. Sounds great, right? Well, before seriously considering a trust, you need to understand the basics of trusts and make a well-informed decision about setting up trusts right for you.
Some trusts are general-purpose; others focus on specific objectives, such as supporting your favorite charity or helping to pay for your children's or grandchildren's education.
A revocable living trust may be an ideal tool to protect your estate. But beware — everyone, it seems, is trying to sell you a revocable living trust. Watch out for the hype!
A bypass trust or a QTIP trust can help you and your spouse avoid unnecessary federal estate taxes. But you need to decide which type of trust works best in your situation.
Some trusts are revocable, meaning that you can change your mind. Other trusts are irrevocable — they can't be changed once you set them up. Make sure you understand the tradeoffs for your estate planning.
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Estate Planning for Special Situations
Even the most orderly estate plans can fall victim to some unforeseen event. To put together a thorough estate plan, take a look at situations that may occur and find out the necessary information for dealing with them.
If you're in the process of getting a divorce, you have a lot on your mind. But you also need to look at how your divorce will affect your estate planning. Chances are the answer is "a lot!"
Part of your estate planning must deal with the possibility of becoming incompetent — unable to take care of yourself. Prepare now, just in case.
If you have pets, you need to specify how you want your pets taken care of after you die.
Unmarried couples, either opposite-sex or same-sex, need to pay special attention to each person's estate planning. Otherwise, problems almost always occur when one partner dies before the other.
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Source:http://www.dummies.com/how-to/content/estate-planning-for-dummies-cheat-sheet.html
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