Estate planning is not one of the most pleasant family situations to speak of, but it is crucial to ensure that your wishes are carried out in the way that you envisioned them to be. When drafting your estate plan, you need to make sure that it fully answers the four questions listed below.
Who will make decisions on your behalf?
With an estate plan, you will need to plan for worst case scenarios. This includes the event of a major disability. Most basic estate plans will include how to disperse properties and assets in the event of death, but not all will provide clear direction on what should be done in the event you are incapacitated. Whether it is in the form of a head injury, a life-altering accident, or a mental decline, there could come a time in your life when you are no longer capable of making the best decisions on your behalf. In your estate plan, you should name people who you want to:
- Make medical decisions on your behalf.
- Be allowed to access your medical records.
- Make financial decisions regarding taxes, asset sales, and investments.
You also should have a protocol to determine if you are incapable of making your own decisions. Do you want determination from a doctor, by the court, or through a consensus of your family members?
The disposition of your body upon your death
This is never a comfortable topic to discuss, but you want to make sure to have clear instructions on how you would like your remains to be handled so that your loved ones are not burdened with the decision after your passing. This also is the perfect way to ensure that your final wishes are honored as well. You can make this section as simple or as detailed as you would like. Some of the questions you will need to answer include:
- Do you want to be buried or cremated?
- If buried, where would you like your plot to be?
- Do you prefer a religious or secular ceremony?
- Have your arrangements been pre-funded or are certain funds to be used for arrangements?
Remember that the more you include in this section will be the make for fewer decisions that have to be made by family members while they are grieving your loss.
Have you effectively minimized your tax liability?
Estate tax is a costly expense starting at around 40% and even higher. These taxes can quickly reduce the amount of your hard-earned money that is left for your loved one. Because of this, estate plans used to be crafted in an effort to avoid paying this exorbitant amount. Unfortunately, tax issues are constantly changing, which means some of these more outdated practices can cause more harm than good. With the current tax law, those with less than $5 million may have no estate tax liability when they die. This causes older tax planning techniques to unnecessarily expose your assets to income tax. Because tax liability is constantly changing, it is always important to regularly review your estate plan to make sure it is structured to minimize tax as much as possible and leave your family or friends with as much of your hard-earned money as you can.
How will your assets be divided?
The division of assets is a core component of an estate plan, and also critical to prevent problems after your passing. Not having a clear plan can lead to fighting among family members and sometimes hard feelings that can linger. Even if you don't designate where everything goes, think of all of your major assets and valuables and make sure that your indicate specifically who these items are left to. This can include family or friends, co-workers, or even as donations to specific organizations. If you have a lot of items that do not necessarily hold a lot of value, you can task one of your relatives with dispersing these items where they best see fit.