If your family has to sort out your affairs while also dealing with the emotional fallout from losing you, they will soon realize the importance of having an estate plan, whether you are wealthy or not. They’ll also feel the pain of your failing to create one for them.
CNBC’s recent article entitled “5 key things to know when you create a will and make other end-of-life plans” explains that your estate plan spells out whom you want to make decisions and who will inherit what you own. “Estate” refers to possessions and other assets. With that in mind, here are five key things to know if you start thinking about how you’d craft an estate plan.
- A will may not cover all your bases. A will is a core component of an estate plan. A will states whom you want to have your assets and whom you want as a guardian for minor children. Without a will in place when you die, a judge will decide who gets what or who is appointed guardian.
- Use care when naming an executor. When you create a will, you name an executor to carry out your wishes and handle your estate. This includes liquidating or closing accounts, ensuring your assets go to the proper beneficiaries and paying any liabilities. An estate plan should also include other end-of-life documents, like a living will that details the health care you want and don’t want if you become unable to communicate those desires yourself. You also can sign a power of attorney to an agent to make decisions on your behalf if you become incapacitated.
- Some assets get a step-up in basis. If you have assets, such as the family home, and are thinking about giving them to your children while you’re alive, it might make more sense to wait. When these assets are sold, any increase from the so-called cost basis (the value when the asset was acquired), and the sale price is subject to capital gains taxes. However, at your death, your heirs who inherit receive a “step-up in basis.” This means that the market value of the asset at your death becomes the cost basis for the heir. As a result, any appreciation prior to that is untaxed. Therefore, when the heir sells the asset, any gains (or losses) are based on the new cost basis. In comparison, if you were to gift such appreciated assets to heirs before your death, they’d assume your original cost basis — which could translate into a large tax bill when the assets are sold.
- You may want to consider a trust. If you want your children to receive money but don’t want to give a young adult or one with poor money management total access to a sudden windfall, consider creating a trust to be the beneficiary of a particular asset. A trust holds assets on behalf of your beneficiary. The assets are left to the trust instead of directly to your heirs. They can only receive money according to how (or when) you’ve stipulated in the trust documents. Ask an experienced estate planning attorney to help you with this.
- You’ll need to review your estate plan. When you have a major life change, like the birth of a child or divorce, you need to review your estate plan. If you move to a new state, check to see if you need to update any part of your plan, so it follows that state’s laws.
Wills, trusts, and estate planning for everyone. To book a call in Anchorage, Alaska, please contact Mitch Wyatt at https://mkwyatt.com