Does Your Estate Plan Work?
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Estate planning is an indisputable way to a secure future. Starting with the simple step of making a will, estate planning can also involve setting up a trust, preparing a power of attorney, protecting the interests of a minor, and much more. In fact, contrary to popular belief, everyone needs an estate plan even if one does not have a fortune of assets.
Regardless of your age or condition, estate planning is vital for a tenable life. The process helps you prepare for future inevitabilities. It protects your family in unfortunate events, such as an accident or the onset of a deadly disease.
While estate planning might not be so tough, judging its authenticity can sometimes be tricky. This is because everyone thinks that their plan is perfect and fail to recalculate the values and peripherals that make a plan successful. This often results in blunders when the strategy is finally implemented.
Here are a few questions to ponder over to know whether your estate plan is indeed effective or not.
Table of Contents
Does your estate plan involve every asset?
Whether big or small, every asset does play a vital role in an estate. Start with jotting down all that you own. This includes both tangible and intangible assets. Here is the list of some perceptible assets that need consideration:
- Real estate including home, business land, and other inherited or purchased properties
- Personal possessions
- Antiques and collectibles such as coins or trading cards, etc.
- Vehicles like boats, motorcycles, trucks, cars, bicycles, etc.
You may also consider preparing a list of intangible assets. These include, but are not limited to:
- Ownership rights in a business
- Certificate of deposits
- Policies including life insurance and other covers
- Mutual funds
- Shares, stocks, or bonds
- Savings accounts
- Medical insurance and health savings accounts
Your estate plan must include the most accurate values of these assets. The valuation of assets should include everything right from recent appraisals, financial account statements, medical bills, to retirement accounts and pension plans. Another way is to evaluate the assets on the basis of how your heirs will value them in the future. This also makes it easy in distributing your possessions among your loved ones in an unbiased manner.
Will or trust – which is ideal for your estate plan?
Writing a will is the soul of an estate plan, but another popular option is to create a trust. The dilemma to decide between the two is on-going for decades now, and the choice often depends on personal preferences.
A will operate after the death of a person, and is executed by a professional testator. Including a will in your estate plan will ascertain that your chosen heirs get your assets. Any sound-minded person can create a will and name an executor who shall pay your debts and distribute your estate as per your wishes. In the absence of a will, the estate is generally passed on to the closest survivor as per the state’s intestacy laws.
As opposed to a will, when your estate plan involves a trust, you are actually transferring your estate to a trustee. This is done to protect the interest of your beneficiaries. There are three types of trusts; charitable, public, and private. A trust differs from a will in a way that it can manage your estate during your lifetime. It further provides the distribution of your wealth in a planned manner after your demise. A trust is not a public record and you can use it regardless of the size of your real estate.
A will requires following the path of a probate that entails a time-consuming documentation process. However, a will is a more personalized form of estate planning which is why it is adopted by many people. There are advantages and disadvantages to both and you should choose one wisely to make your estate plan more viable. But remember that a discontented heir can challenge a will as well as a trust.
Does your estate plan involve wisely-chosen fiduciaries?
A fiduciary advisor is an individual who holds the responsibility of managing and taking care of the financial assets of another person. It is important to be careful while selecting a person fit enough to carry out such an impertinent task. In some ways, choosing the person who distributes your assets wisely is more important than choosing who inherits the assets. If your heir revolts against your will, the matter would go to court. Consequently, all your hard-earned money can be wasted over lawyer fees.
Choosing a fiduciary requires attention. You may select one or more people to handle different parts of your estate plan or even nominate institutions. When you chose a fiduciary, you get more time and clarity to pay attention to other things in your plan, for example, disability provisions for a loved one or special provisions for a minor, etc.
Is your plan regularly updated?
Apart from creating an estate plan, you also need to update and review your estate plan frequently. If you create a plan at a young age, you might experience life changing events in your personal and professional space later. This calls for the incorporation of these important changes into the plan.
This is particularly important for people who have been married more than once, or are divorced or widowed. You must be quick to always update the name of your beneficiary on all your accounts and policies. Similarly, the birth of a child or grandchild, or the addition of step children in your family, can also call for a change in your estate plan. Your plans also need an update if your beneficiary passes away before you.
You also need to analyze and evaluate the effects of your professional and financial life on your estate. For instance, if you open a joint account, you need to entitle your spouse’s name in the plan. If you don’t follow or update your estate plan, things can derail quickly.
To sum it up
Having an estate plan is a simple way to ensure that your loved ones are financially secure. While most of us know the basics, it is when people miss out on the little details, that families find themselves being hassled in long court procedures. Estate planning is neither a one-step simple procedure, nor is it a process involving too many complications. If planned intricately, an estate plan can be prepared easily in a few days. And when executed in an ideal manner, it bestows the perks of financial savings, asset management, and timely documentation.
Are you planning your estate well? Consult financial advisors to get your estate plan analyzed in an effective manner.
