Estate planning is the strategy of determining who will act on your behalf in the distribution of your estate, to whom and how your assets will be distributed and the arrangement of assets while living, in order to minimize taxes and hasten asset distribution to your heirs. Most people do not want the government to determine how your estate will be distributed, should you die intestate. So every adult should be well informed about estate planning because you just don’t know when estate distribution will be triggered.
4 Steps To A Better Estate Plan
1. List your assets and liabilities and income. By doing so, you will be better able to determine if some liabilities should be reduced as you age and whether or not assets should be “re-arranged” in order to reduce taxes at death or to simplify estate distribution. This information will also assist your executor in completing your final income tax filing and in locating and liquidating your assets and liabilities. Some types of income may continue after death, such as a pension payable until the death of both spouses. Some assets may be immediately turned into cash. But the institution responsible will have to be notified, such as a life insurance company.
2. Determine who is best to act as executor. Usually this is a close relative, a son or daughter or both. If your estate is particularly large and/or complicated, it may be a company, such as a trust company or legal firm. Remember, two or more executors can act jointly on your behalf. But it is wise to appoint someone who has some business experience. He need not be a legal, accounting or tax expert because these individuals are often employed by the estate to provide specialized advice and complete the applicable documents and filings.
3. Give considerable consideration to who will benefit from your estate and how. Usually the primary beneficiary is the spouse with close family members as secondary beneficiaries. However, a secondary beneficiary may include a favourite charity.
When distributing an estate many scenarios should be reviewed regarding your death and that of your spouse. For instance, if both parents of under age children die together, who will act as guardian? This then would create the question of how to distribute the estate. Access to earnings with encroachment on capital would be a typical scenario. Or if your children are adults at the time of death a trust may be established in order to pay out earnings over many years. Or possibly the estate should be distributed in tranches as the children reach certain ages.
4. Have a will drawn up by a lawyer. Some people have used a “do it yourself” packaged will. While these are inexpensive and may result in a satisfactory document, it is far wiser to review various scenarios with your lawyer who will then craft the wording in legal terms. Sometimes family relationships become strained or parents may divorce and remarry. In such cases it becomes even more important to have a well written will.
Keep in mind a will is a living document that will require some changes on your journey through life. Your assets and liabilities will change in amount and type. You may want to change your beneficiaries, either adding or subtracting from the will. You may want to change executors. And your personal circumstances may change whereby you have a new spouse, or a child may have died or become seriously ill. A great deal of time should be spent planning estate distribution. Your beneficiaries will be grateful.
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