The many facets of estate planning can make this all seem very overwhelming at first. But don't let this scare you off. Keep in mind the time to plan for death or disability is when you're healthy. With a little time and research, you will soon feel in control, and much more comfortable with this topic. You will then be prepared to choose the steps you want to take to move forward with planning your estate.
Estate
Your estate is everything you own: your house and any other real estate; checking and savings accounts; investments; business interests; retirement benefits; IRAs; insurance policies; collectibles and art; furs; jewelry and other personal belongings.
What is Estate Planning
This is the process of strategizing how, when and to whom, the proceeds of your estate are to be distributed.
The primary foundation of an Estate Plan is your Last Will and Testament. To this important tool, you can add a Power of Attorney, a Medical Advance Directive and/or a Trust to achieve the results you desire for your estate.
Estate planning can be combined with savings, investment, retirement, and long-term care planning, as well as trusts, to form an all-inclusive tax-saving financial plan for the preservation of your assets; the protection and continued operation of your business; the support and care of your minor children upon you and your spouse's death; and much more.
Estate Tax
Estate tax is a tax on the transfer of property to others, usually children of a decedent. These are separate from probate expenses and final income taxes owed on income you earned or received in the year you die. They are also separate from inheritance taxes that some states impose.
Depending on the value of your property and assets at the time of your death, your estate may have to pay estate taxes before your assets can be fully distributed. Your estate will have to pay taxes if its net value is more than the exempt amount set by Federal Tax laws. To determine your estate's net value, add the value of all your assets and then subtract your debts.
Many states impose their own estate taxes, too, as a type of "sponge tax" that piggybacks on the federal estate tax.
Reasons You Need an Estate Plan
A well-prepared Estate Plan can keep more of your money and property in the hands of your Beneficiaries, rather than turning over a larger portion than necessary to government entities, by allowing you to minimize taxes and probate fees.
It allows you to designate charitable gifts and ensures that your assets are distributed as you intend. You can make provisions for your possible incapacitation by specifying your personal and health care preferences and provide funds to cover funeral expenses, plus immediate and/or long-term family living costs. If you own or manage a small business, it can ensure business continuity. You can also choose the individual(s) you want to carry out your instructions and care for your minor children.
An Estate Plan assures prompt economical and private distribution of your estate without the excessive involvement and expense of courts, attorneys and others. A clearly spelled out estate plan will reduce or eliminate the likelihood of disputes over the distribution of your estate.
Fundamentals of Estate Planning - hg.org. (n.d.-c). https://www.hg.org/estate-planning-fundamentals.html