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> Proper Estate Planning Can Pay Off
It may not be something you want to think about today,
but the day will come when your estate will have to be passed on to your
heirs. The reality is that you never know exactly when that day will come.
That's why it's important to have a plan in place for the transfer of your
assets to others. Even if you don't consider yourself wealthy, estate planning
is critical.
No matter how much you may be able to pass on to your heirs, there are two issues that demand immediate consideration:
- At the time of your death, you want to make matters as easy as possible for your loved ones. And you want to be sure that the assets you do pass on are directed to the appropriate parties.
Estate planning can be complex, depending on the potential size of your estate.
But it doesn't have to be. The following are a few simple steps you can
take to be sure your goals are achieved.
Assess the size of your estate
One of the major benefits of undertaking serious estate planning is that it gives you a chance to take inventory of your financial picture. What dollar value can you place on your investments, savings and possessions?
It's important to know where you stand today, and also to project how large an estate you expect to have at some point in the future. This is due to estate tax considerations. If the total value of your assets is limited, you aren't likely to have any estate tax concerns. But as it grows, so may the tax issues that you face. Be sure to include in your assessment the value of retirement plans at work and life insurance benefits that would be paid on policies that protect your life. They will be included in the value of your estate.
Prepare a will
Many people fail to take the time to prepare a will. If you are married, everything owned jointly with a surviving spouse automatically passes to that spouse. But without a will, the fate of assets you individually own will be determined by the state. This can create a lot of problems for your heirs, and make it very possible that your assets will not end up where you intended. A will can easily be created with the help of an attorney, and there is even computer software available that can help guide you in drawing up one yourself.
Make sure beneficiary designations are up to date
A number of your financial assets, ranging from a retirement plan at work to a personal IRA account and even U.S. savings bonds include a beneficiary designation. It is important to be sure that the beneficiary designation for each of those assets is current. If any significant changes have occurred within your family, you may need to update the documentation.
Prepare for estate tax ramifications
If your estate grows large enough between now and the time you die, estate
taxes may come into play. This is not the case for the first spouse that
dies and leaves the entire estate to a surviving spouse. Thanks to an unlimited
marital tax deduction, the surviving spouse is spared estate tax concerns.
However, upon the death of the second spouse, estate taxes will again come
into play. There is no federal tax on the first $650,000 in assets in 1999.
This threshold will increase gradually to $1,000,000 by 2006 under current
tax laws.
At that level, taxes begin to be assessed, and they can be significant. If the estate has sufficient liquidity, paying taxes out of the estate is an option. However, if a number of the assets are not easily liquidated, such as a business or personal property, it may make sense to buy life insurance policies that will generate a sufficient benefit to offset the estate tax liability.
Regularly review your estate
Estate planning is not something you can do once and forget. After all, as your life goes on, your personal and financial circumstances will change. You'll regularly want to re-assess the value of your estate, determine if any changes need to be made in your will, and make sure you have adequate protection to offset the potential impact of taxes on your estate.
Nearly all of us have a difficult time planning ahead, but in the case of your estate, proper planning can make a big difference. It will prove to be especially important to helping your heirs in what can be a difficult time. Talk to your financial representative for more insights, and consult with an attorney to answer specific questions and help draw up legal documents.
Content is for informational purposes only and may not accurately reflect your specific situation. Information is not intended to provide financial, legal, tax, or accounting advice. You should consult a qualified advisor for advice specific to your own circumstances.
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