1. No matter your net worth, it’s important to have a basic estate plan in place. Such a plan ensures that your goals are met after you die.
2. An estate plan has several elements. They include: a will; assignment of power of attorney; and a living will or health-care directive (medical power of attorney). For some people, a trust may also make sense.
3. Taking inventory of your assets is a good place to start. Your assets include your retirement savings, insurance policies, real estate, business interests, valuable collectibles and personal properties, and other investments.
Ask yourself three questions:
- Whom do you want to inherit your assets?
- Whom do you want handling your financial affairs if you’re ever incapacitated?
- Whom do you want making medical decisions for you if you become unable to make them for yourself?
4. Everybody needs a will. A will tells the world exactly where you want your assets distributed when you die. It’s also the best place to name guardians for your children. Even if you have a trust, you still need a will to take care of any holdings outside of that trust when you die.
5. Trusts aren’t just for the wealthy. Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. With Trusts, your assets will be distributed to your named beneficiaries without the cost, delay and publicity of probate court, which administers wills. Some type of trusts also offer greater protection of your assets from creditors and lawsuits.
6. Discussing your estate plans with your heirs may prevent disputes or confusion after you’re gone.
7. The federal estate tax exemption — the amount you may leave to heirs free of federal tax — is now set permanently at $5 million indexed for inflation. In 2015, estates under $5.43 million are exempt from the federal estate tax. 15 States and the District of Columbia have an estate tax exemption that’s much lower than the federal exemption.
8. You may leave an unlimited amount of money to your spouse tax-free, if you and your spouse are both U.S. Citizens. However, by leaving all your assets to your spouse, you don’t use your estate tax exemption and instead increase your surviving spouse’s taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse’s death.
9. There are two easy ways to give gifts tax-free and reduce your estate. You may give up to $14,000 a year to an individual (or $28,000 if you’re married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.
10. If you donate to a charitable gift fund or community foundation, your investment grows tax-free and you can select the charities to which contributions are given both before and after you die.
11. If you or your spouse are not a U.S. Citizen, you may need different planning.
It’s important to get legal or tax advice and think through how each asset will pass to your beneficiaries, as well as your estate as a whole. The best options may vary by the asset type, asset size, your age, your family situations, and many other factors.