Estate planning involves determining how your assets will be distributed in the event of your death or physical or mental incapacitation. Without proper estate planning your assets may not be distributed to your heirs in the desired manner. Common elements include appointing a power of attorney and determining whether a trust should be set up. Creating a will keeps your assets out of the probate process. It is also important to know the pertinent tax implications. It is advisable to seek the counsel of an attorney who specializes in estate planning or from a certified financial planner when creating your estate plan.
Estate planning is necessary so that your wishes concerning your financial affairs are executed properly upon your death or incapacity. Without it, your heirs may not receive your assets in the desired manner, or your family may not be able to manage their financial affairs correctly or to achieve their desired financial goals.
Elements of a typical estate plan include appointing someone to have the power of attorney for your affairs, which gives the individual certain legal rights when it comes to managing your affairs. A medical power of attorney gives an individual similar rights in the event that you become incapacitated. A trust can place restrictions and conditions as to how your assets are distributed.
To begin the estate planning process, it will be helpful to first make a list of all of your assets and assign each a monetary value if one is not apparent. This will help you determine how you want your assets to be distributed and to whom. Common assets include insurance policies, homes, cars, savings accounts, retirement accounts and other investment accounts. It is also good to indicate your intentions to your heirs to avoid any possible confusion.
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It is of vital importance to have a current will, and keep it up to date as changes occur. Without a will, your assets will likely go through a legal process known as probate, resulting in the assets being distributed in a completely different fashion than you had intended. It is possible that without a will, your assets could be awarded to your creditors first instead of to your heirs.
Any estate plan needs to take into account any tax implications. For example, there are certain restrictions as to the dollar amount of assets that you can leave to your heirs tax-free. You also need to learn the pros and cons of the tax-free amount you can leave your spouse, as well as whether you wish to leave tax-free gifts to your heirs.