A Practical Guide to Estate Planning
Estate planning is a fundamental step in securing your financial legacy and ensuring a smooth transition of your assets to your loved ones, in the event of your death.
However, estate planning can get complicated, especially if there are a lot of assets to distribute! Understanding the significance of wills and trusts, and learning common mistakes to avoid them, can equip you to navigate the estate planning process with ease.
Key terms in estate planning
A will, more formally referred to as a last will and testament, is a legal document that outlines a person’s wishes regarding the distribution of their assets and the care of any minor children after their death.
Wills specify how a person’s assets– like property, money, and possessions– will be distributed amongst heirs, beneficiaries, or charitable organizations.
The person creating the will is legally referred to as a testator. The testator appoints an executor who will be responsible for carrying out the instructions in the will in the event of the testator’s death. This executor ensures that debts are settled, and assets are distributed according to the testator’s wishes.
Wills go through a legal process called probate. During this process, the court validates the will and oversees the distribution of assets that the executor is responsible for. This process may vary based on jurisdiction.
A trust is a legal arrangement in which the person– referred to as the grantor or settlor– places assets into the care of a trustee for the benefit of one or more beneficiaries. Trusts can be used for many purposes, and there are several different types of trusts.
Trusts provide a greater level of privacy than wills because they may not go through the probate process. The details of a trust, including its assets and beneficiaries, may remain private.
A trust can also be revocable or irrevocable. A revocable trust allows the grantor to make changes or revoke the trust during their lifetime, while an irrevocable trust– once it’s been established– is permanent. An irrevocable trust may boast certain tax advantages.
Develop a strategy for the inheritance of your assets by designating beneficiaries for accounts like life insurance and retirement plans. Clearly defined beneficiaries streamline the assist distribution process, preventing potential disputes.
Common mistakes in estate planning
One of the biggest mistakes people make when it comes to estate planning is simply procrastination. You don’t have to be “old” to get started!
Procrastination can lead to complications and confusion in the event of an unexpected loss. Having a plan in place makes it much easier for your loved ones.
Be sure to openly communicate with your family members about your estate plans. Failing to maintain transparent communication helps to prevent misunderstandings and keeps everyone on the same page.
Don’t attempt to “DIY” your estate planning process. Estate planning matters are complex, and are usually much too difficult to navigate without the help of a professional. Consulting an estate planning attorney ensures that your plan is legally sound and in the best interests of you and your loved ones.
To get started on estate planning, reach out to schedule a consultation today. It’s never too early!