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A guide to financial preparation: Estate planning

Date posted:  7/21/16 09:00:00 AM UMB Estate Planning

A guide to financial preparation: Estate planning  

Estate planning allows you to achieve complete financial peace of mind and to prepare for the unexpected. Build your legacy and ensure your assets go to the organizations and people you care about most by carefully planning ahead.

Estate planning provides financial stability and support for your family if you pass away or can no longer provide for them in the event of incapacity or illness. Through estate planning, you can pass your wealth to future generations, support causes you are passionate about and potentially minimize taxes incurred by your estate. An estate planning attorney can help you gather information and create the documents required to create an estate plan.

Creating an estate plan and selecting an executor
When creating an estate plan, there are several steps you should take to ensure that your wishes are being carried out during your life and after your death:

  • Create a will, a HIPPA release form, Durable Power of Attorney for Financial Purposes, a Health Care Power of Attorney and an Advanced Health Care Directive, as well as a trust if you choose to do so
  • Outline how assets will transfer if you pass away, and to whom
  • Determine who will be the executor, or legal manager, of your assets after you die
  • Decide who should serve as trustee of any trust which you may create
  • Select the individual or individuals who you trust to act as a guardian to your minor children, if any
  • Determine who will act on your behalf if you become incapacitated

An executor’s duty is to carry out your wishes upon your death. Executors can be individuals or corporate entities, such as banks and trust companies. The executor must work with an attorney to comply with the legal procedures involved with opening a probate estate, if necessary, be able to read and understand important documents, such as the will, and be comfortable making legal and financial decisions. Because a lot of work is involved, an executor must have time to dedicate to this particular role.

Choosing an executor can be a stressful decision. According to the American Bar Association, you should consider a number of factors before deciding on the appropriate candidate, such as:

  • Do you trust this individual?
  • Do your spouse and family members trust this person?
  • Does this individual have a legal background?
  • Does this individual have a financial background?
  • Would this person feel comfortable if assigned this task?

Duties entrusted to the executor
Once you have chosen a suitable candidate as your executor, put aside some time to go over the various duties associated with the role before asking him or her to accept. This will help the person you have selected decide if they are willing to serve as your executor.

Review responsibilities with the executor candidate and be prepared to answer any questions he or she may have. Provide this individual with clear expectations and tasks he or she must perform as an executor.

For example, the executor must:

  • Manage the assets of your estate until their final disposition
  • File your final personal tax returns
  • Uncover, evaluate, address and pay your debts and any other claims against your estate
  • Work with beneficiaries to distribute assets appropriately and in accordance with your wishes
  • Ensure required minimum distributions from individual retirement accounts and qualified plans are met, if applicable

In addition, there are a number of other responsibilities and commitments required of an executor. The time and financial commitment to this service is substantial. An executor must be aware of this before accepting the authority of this position.

In many instances, an executor may need to seek professional assistance. Discuss with the executor candidate ahead of time any preferences you have regarding particular financial advisors, attorneys, accountants or other professionals who may be able to provide services and advice to the executor of your estate.

Alternative options
Regardless of whether your first choice candidate indicates he or she is comfortable being named as executor, it is important to name one or more successors who can serve should your original choice be unavailable to serve. Have a few different individuals or a bank or trust company in mind to serve as your executor, and notify these individuals or entities in the same manner you would your primary choice.

While your spouse may be a good choice for executor, you may want to rethink selecting your husband or wife in case he or she passes simultaneously with you. It is also a good idea to consider choosing someone other than your spouse for objectivity reasons, and to prevent a burden from being placed on your spouse when he or she is still processing a major loss.

Marshalling your assets
Another important step in creating your estate plan is determining the extent of all of your assets, and coming up with an approximate valuation of your net worth. Different types of assets to include are:

  • Taxable accounts
  • Life insurance
  • Annuities
  • Real estate
  • Closely-held business interests
  • Collectibles (such as coins, artwork, etc.)
  • Automobiles
  • Retirement accounts

It is also important to make a note of any debt you may owe, or that may be owed to you. 

Beneficiary selection
Beneficiary selection allows you to clearly indicate who should receive specific portions of your estate after you pass away, and how they should receive those assets. Consider the special needs of any individuals who may need financial support, like children, and determine how you would like your property and other assets to be distributed.

You can also pass on money or assets in alternative ways, like:

  • Donating to organizations
  • Leaving money for charities
  • Creating a trust to hold your assets, allowing them to be distributed to your beneficiaries over specified periods of time and for the reasons you choose

Work with a wealth management advisor or attorney to ensure proper distribution of your assets. Come to these professionals with goals and objectives. Make sure you’ve carefully thought about your legacy and understand your expectations for your estate after your passing.  This preparation will allow you to better select the individuals or organizations you would like to pass assets to and think through the form and manner in which those assets should be distributed.

Once your estate plan has been created, it will be important to update your estate plan periodically as circumstances change. Have you recently embarked on a promising business venture? Do you plan to donate more or less to charity? Will you inherit money from a relative? Answer these questions and revisit them frequently to ensure the planning you do today stays current and true to your wishes over time.

State and local taxes
When planning for the disposition of your estate, be aware of federal, state and local taxes that can affect assets you gift to people and organizations. It is generally considered helpful to consult a tax advisor to help you sort through this information.

You may also consider alerting your executor to potential taxes and fees that may occur when your estate is transferred to his or her management.

Estate planning is a critical process to ensure your legacy is carried forward for the people and organizations you care about. Understanding all components of the process will help as you approach this task, and enlisting the help of a professional will provide peace of mind.

This content is for informational purposes only and is not for the purpose of legal advice.


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