We plan for life, vacations, college savings and retirement, says Forbes’ recent article, “4 Ways To Improve Your Estate Plan.” Another stage of life that needs planning is the end of life. If you need a reason, here’s a simple one: to protect your family and loved ones.
- Beneficiary Designations. Many types of accounts go directly to heirs, without going through the probate process. This includes life insurance contracts, 401(k)s, and IRAs. These accounts can be transferred through beneficiary designations. You should update and review these forms and designations every few years, especially after major life events like divorce, marriage or the birth or adoption of children or grandchildren.
- Life Insurance. A main objective of life insurance is to protect against the loss of income, in the event of an individual’s untimely death. The most important time to have life insurance is while you’re working and supporting a family with your income. Life insurance can provide much needed cash flow and liquidity for estates that might be subject to estate taxes or that have lots of illiquid assets, like family businesses, farms, artwork, or collectibles.
- Consider a Trust. In some situations, creating a trust to shelter or control assets is a good idea. There are two main types of trusts: revocable and irrevocable. You can fund revocable trusts with assets and still use the assets now, without changing their income tax nature. This can be an effective way to pass on assets outside of probate and allow a trustee to manage assets for their beneficiaries. An irrevocable trust can be a way to provide protection from creditors, separate assets from the annual tax liability of the original owner and even help reduce estate taxes in some situations.
- Charitable Giving. With charitable giving as part of an estate plan, you can make outright gifts to charities or set up a charitable remainder annuity trust (CRAT) to provide income to a surviving spouse, with the remainder going to the charity.
An estate plan serves many purposes. It includes protecting your family and making sure assets pass to the designated heirs. Your estate planning attorney will also tell you that an estate plan protects you, in the event of incapacity. These are all good reasons to have an estate plan created that is right for you and your family.
Reference: Forbes (November 6, 2019) “4 Ways To Improve Your Estate Plan”