Regardless of the size of your nest egg, effective estate planning is needed to make sure the right people inherit your assets. Estate planning is commonly used to limit the taxes that will be owed by your beneficiaries based on the assets they inherit. Whether or not you already have an estate plan in place, the following five tips are to help you better prepare your estate.
Clearly State Who Gets What
The failure to create a will or trust will result in the laws of your domicile controlling who inherits your assets. This includes both financial assets like money in the bank and non-financial assets like family heirlooms or items of sentimental value. Instead, create a will or trust that clearly states who is to receive what and when.
Provide Clear Instructions for Spending the Money
If you plan to utilize your estate plan to take care of specific expenses, you may want to include special provisions. Clear and distinct language can be used to set aside money for college or other expenses of a particular beneficiary. You will select a trustee and that person will be legally bound to designate money as you provide in your estate plan to cover the expenses identified.
Take Steps to Minimize Taxation
Tax efficiency strategies can be used to minimize the amount of taxes your beneficiaries will owe on the amounts they inherit. Leaving taxable assets to charities and non-taxable assets like your Roth retirement account or life insurance to other beneficiaries is one simple way to limit your beneficiaries’ tax burden. By planning your estate now, you could also use gifting schedules to reduce the impact that estate and income taxes will have on the assets inherited by your beneficiaries.
Use Life Insurance Wisely
Income taxes and estate taxes can take a significant percentage of assets from a beneficiary. However, proper planning of life insurance proceeds can offset anticipated taxes. For large estates, one can estimate the amount of taxes a beneficiary will be burdened with and obtain life insurance in an amount to offset the tax burden. With life insurance proceeds being tax free, utilizing life insurance proceeds to offset taxes will significantly help your beneficiaries.
Use a Team of Experts to Plan Your Estate
Estate planning should not be a one-person job. An attorney should be utilized to properly draft the will or trust documents. A knowledgeable financial planner can help you create a strong portfolio for your assets and offer tools to maximize gains. And lastly, a well-qualified accountant should be consulted to minimize taxes. Use the knowledge of these experts to create your desired estate plan.
Don’t procrastinate about your estate. Use these five tips to create an estate plan that allocates your assets as you see fit.
Amir H. Afsar, Esq. is an attorney and founder of Afsar Law Group, A.P.C. which represents clients in business, real estate, construction, and estate planning matters throughout the Coachella Valley including Indio, La Quinta, Bermuda Dunes, Indian Wells, Palm Desert, Rancho Mirage, Cathedral City, Palm Springs, Banning, Joshua Tree, and other cities located within Riverside and San Bernardino County. Mr. Afsar can be reached at Afsar Law Group, A.P.C. at 760.345.3110.