Virtually all people, not just the wealthy ones, have an estate. This estate consists of everything they own, such as their home, vehicles, real estate, life insurance, brokerage accounts, retirement accounts, savings accounts, personal property, and furniture.
State laws provide a number of ways for you to ensure your wishes will be carried out in the event you die or become incapacitated, and not how the state dictates. Being prepared and in control of how the estate will be distributed and whom the assets will be given is something all adults need to do.
Failing to properly draft a will could mean that the laws governing your domicile will determine who will inherit your assets, including non-financial assets. Without a laid out will, those paintings or pieces of jewelry that certain family members wanted to have for years might go to other individuals who might not really care much about those sentimental items.
You can choose how your money will be spent by creating a special trust that includes specific provisions on how you wish your assets are allocated to cover certain expenses, such as designating specific amounts to cover certain individuals’ expenses for special needs. This ensures that the trust’s trustee will be legally bound to spend your money according to your wishes.
If your beneficiaries are likely to be left owing estate tax or income tax on the amount they will inherit, you can minimize estate and income taxes by employing tax-efficient strategies early on. An example of these strategies is leaving taxable assets to charities while leaving tax-free assets to other beneficiaries. “Gifting money to beneficiaries while you’re alive is also an efficient way to minimize your taxable estate. In Alabama, a gift under $13,000 for each recipient is tax-free.” shares Birmingham estate lawyer James Griffin.
Offsetting taxes with life insurance is an efficient way to ensure that your beneficiaries will not lose a substantial amount of their inheritance to estate taxes and income taxes. If one of your beneficiaries is likely to owe a certain amount in estate tax, you may want to purchase a life insurance plan for that amount and name that specific person as your beneficiary in the insurance plan. The proceeds from life insurance paid to your beneficiary are tax-free, which means the entire amount would be available to pay the taxes he or she owed.
When it comes to estate planning, your best course of action is to properly plan ahead and communicate with family members regarding your wishes with respect to end-of-life care and distribution of your assets after your death. Having a properly prepared and well-planned estate will give you and your loved ones peace of mind.