The second most important component of a financial plan involves deciding how you want your assets distributed. Additionally, an estate plan decides how to handle your care and your finances, should you become incapacitated. Without an estate plan, a probate court will decide all estate matters, which may or may not follow your wishes. Proper estate planning offers several benefits:
- Named Beneficiaries - You name the people to whom you wish to bequeath your assets. Your wishes are legally binding.
- Tax Management - You can arrange it so that taxes siphon as little as possible from your estate.
- Peace of Mind - The satisfaction of knowing that your financial affairs are in order, so you won’t bequeath a costly administrative nightmare to your loved ones
Eunoia recommends that an estate plan include several documents, and possibly trust documents as well.
- Recommended Documents
- Will – Details how, and to whom, you want your assets distributed
- Power of Attorney – Assigns a person, or persons, the authority to manage your financial affairs if you are unable to do so.
- Living Will - A statement of your wishes for the kind of life-sustaining medical intervention you want, or don’t want, in the event that you become terminally ill and unable to communicate.
- Healthcare Proxy - Authorizes a person, or persons, you trust to make medical decisions on your behalf.
- Optional Document(s)
Trust – Depending on your individual circumstances and/or goals, one or more may make sense.
Note on estate taxes: If you intend to leave all of your assets to your spouse, estate taxes do not come into play. You can leave an unlimited amount of money to your spouse tax-free. Otherwise, your estate will owe taxes only if its value, including real estate, life insurance proceeds, retirement accounts and investments, exceeds a certain threshold, known as the estate tax exemption. If your estate is large enough to trigger the estate tax, only the amount that exceeds the exemption will be taxed. In 2016, the estate tax exemption was $5.45 million. Depending on each person’s situation, a properly executed Will and Trust documents can help lower the tax burden of your estate.