Why do I need an estate plan?
An estate plan allows you to protect, maintain, and manage your assets in the event that you become ill or pass away. It can also help ensure that your minor children have guardians named and that they are covered financially if something happens to you. A proper estate plan can also help you avoid probate so that your beneficiaries can receive their inheritance much faster and easier.
Many people assume that estate planning is only necessary for older, wealthy people, but this is not the case.
Before you get started on the estate planning process, here are a few steps you can take:
1. Keep all of your essential documents in a safe place and let your key family members know of their location.
2. Make a list of your assets, as well as any debts such as your mortgage.
3. Think about and write down your goals for your estate plan: who your beneficiaries and remote beneficiaries should be, who should take care of your minor children if you are no longer able to, and who should manage your finances if you become incapacitated.
4. Review your current estate plan if you have one.
5. Review and update the beneficiaries of your retirement plans and life insurance policies.
6. Review and update your financial and medical Power of Attorney.
7. Think about creating a trust and discuss with your attorney or financial advisor to see what they recommend.
Revocable vs. Irrevocable Trusts
A Revocable Living Trust is a trust that you are typically in charge of while you are living. You can control the assets in the trust, change the trustee, etc. You will most likely be named as both grantor and trustee of this trust. Assets can be placed into a Revocable Living Trust so that they can bypass probate. However, Revocable Living Trusts do not provide any immediate tax benefits.
Unlike a Revocable Living Trust, an Irrevocable Trust is not able to be changed once it is created. If assets are funded into an Irrevocable Trust, they must permanently stay in the trust. The transfer cannot be undone (or can only be undone through a complicated process). These types of trusts are usually created to reduce a grantor's taxable estate.
Make sure to review and update your estate plan every few years as things change with your family and financial situation and as new legislation is passed in regards to estate tax laws.