You don’t have to be rich to need an estate plan. Your estate includes everything you own, and it can be any size, which is why it can be worth taking time to plan for what happens to it. Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. One goal is to ensure beneficiaries receive assets in a way that minimizes taxes.
Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. The key question to ask yourself is: How do you want your assets distributed if you die or are incapacitated?
5 STEPS FOR BASIC ESTATE PLANNING:
1. TAKE AN INVENTORY. You may think you don’t have enough to justify estate planning. But once you start looking around, you might be surprised by all the tangible and intangible assets you have.
The tangible assets in an estate may include:
* Homes, land, or other real estate
* Vehicles including cars, motorcycles, or boats
* Collectibles such as coins, art, jewelry, antiques, or trading cards
* Other personal possessions
The intangible assets in an estate may include financial assets like:
* Checking and savings accounts and certificates of deposit
* Stocks, bonds, brokerage accounts, and mutual funds
* Life insurance policies
* Retirement plans such as workplace 401(k) plans and IRAs
* Health savings accounts
* Ownership in a business
Once you inventory your assets, you need to estimate their value. For some assets, outside valuations like these can help:
* Recent appraisals of your home and any other real estate you own
* Statements from your financial accounts
When you don’t have an outside valuation, value the items based on how you expect your heirs will value them. This can help ensure your possessions are distributed equitably among the people you love.
2. ACCOUNT FOR YOUR FAMILY'S NEEDS. Once you have a sense of what’s in your estate, think about how to protect the assets and your family after you’re gone.
* Do you have enough life insurance? This may be important if you’re married and your current lifestyle — and monthly mortgage payment — requires dual incomes. Life insurance may be even more important if you have a child with special needs or college tuition bills.
* Name a guardian for your children — and a backup guardian, just in case — when you write your Will. This can help sidestep costly family court fights that could drain your estate’s assets.
* Document your wishes for your children’s care. Don’t presume that certain family members will be there or that they share your child-rearing ideas and goals. Don’t assume a judge will abide by your wishes if the issue goes to court.
3. ESTABLISH YOUR DIRECTIVES. A complete estate plan includes important legal directives.
* A Revocable Living Trust might be appropriate. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing probate, which is the court process that may otherwise distribute your property.
* A Directive to Physicians, also known as a "Living Will," spells out your wishes for end-of-life medical treatment if you become unable to make those decisions yourself. You can also give a trusted person a Health Care Power of Attorney for your health care, giving that person the authority to make day-to-day health care decisions if you can’t.
* A Durable Power of Attorney allows someone else to manage your financial affairs if you’re unable to do so. Your designated agent, as directed in the document, can act on your behalf in legal and financial situations when you can’t. This includes paying your bills and taxes, as well as accessing and managing your assets.
4. REVIEW YOUR BENEFICIARIES. Although your Will and other documents may spell out your wishes, they may not be all-inclusive.
* Check your retirement and insurance accounts. Retirement plans and insurance products usually have beneficiary designations that you need to keep track of and update as needed. Those beneficiary designations will trump what’s in a Will.
* Make sure the right people get your stuff. People sometimes forget the beneficiaries they named on policies or accounts established many years ago.
* Don’t leave any beneficiary sections blank. In that case, the account will have to go through probate, and may be distributed contrary to your wishes.
* Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
5. NOTE YOUR STATE'S ESTATE TAX LAWS. Estate planning is often a way to minimize estate and inheritance taxes. But most people won’t pay those taxes.
At the federal level, only very large estates are subject to estate taxes. For 2020, up to $11.58 million of an estate is exempt from federal taxation. However, Washington's state estate tax only exempts the first $2.193 million of a person's estate.
At the federal level, only very large estates are subject to estate taxes. For 2020, up to $11.58 million of an estate is exempt from federal taxation. However, Washington's state estate tax only exempts the first $2.193 million of a person's estate.
If you have questions about estate planning, give us a call at 253.858.5434 to set up an appointment today. We represent clients throughout Washington and Idaho and are available to meet in person (with appropriate social distancing protocols in place), by phone, or via video conference.
