How to Plan Your Estate
It can be depressing to think about, but every adult should spend time planning and preparing their estate. When you are ready, here’s how to plan your estate.
Retirement Planning
Retirement planning and estate planning overlap, but are not necessarily the same thing. Your estate is the bulk of your assets when you die. Presumably, those assets helped sustain you during your retirement. So when planning for retirement, you must also give some thought to your estate as well.
Assess Your Situation
The first place to start in estate planning is to assess your situation. How much money do you have in retirement funds? How much will you realistically be spending each year? Are you trying to retire early? Will your retirement funds be enough to last through the end of your retirement?
Tally up all of your assets. If your total net worth is over one million dollars, you should strongly consider a trust. Even if your total is less than one million, a trust will allow you to set conditions on how your money is distributed after your death. It also offers protection from government taxes.
Set up Your Will
If you do not already have a will in place, set one up immediately. This will save time and legal proceedings when you pass, even if you have no funds left in your retirement accounts. A will specifies who receives what from your estate. Speak with a lawyer or financial planner to have a will set up to maximize your estate.
Set up a Power of Attorney
You must also have a power of attorney to execute the will. Your power of attorney allows someone to act on your behalf, so it is necessary to have a power of attorney in place before you become incapacitated in any way.
Set up a Medical Power of Attorney and Living Will
You need to specify your plans for hospitalization and life support. You can set up a plan telling doctors to keep you on life support as long as humanly possible, or you can ask to not be resuscitated or kept alive solely by machines. A medical power of attorney or healthcare proxy will act on your behalf when you become unable to make your own medical decisions.
Start Distributions
The government has powerful estate tax laws that are changing a bit now, but will solidify in a few years. This means that any estate over $1-3.5 million can be taxed at almost 50% by the government. It is important to set up a trust to protect the assets when you are gone, or you can begin distributing funds now to avoid the tax burden. You can currently give an individual $12,000 a year (or $24,000 if you’re married) tax free. You can also pay unlimited amounts of education and medical bills on behalf of someone else or set up charitable donations tax free.
Explain Your Plan
Finally, you need to explain your plan to your family. Be sure others have a copy of your documents and explain your desires and rationale. This will help avoid confusion or even conflict at the time of your passing.
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