Financial planning is an essential part of one’s life, especially if you wish to grow up as a responsible adult with the potential to achieve life goals. It includes different things like how to pay your taxes, how and what to save, what to invest in, and when. However, this still doesn’t cover everything about your finances.
We are missing out on estates. Your most critical long-term assets might be in a drought after getting ignored by almost everyone in the financial plan. Today, our primary focus is on combining estate and financial planning, giving you a complete overview of the situation.
What Are Estates?
In literal terms, the estate is your own property without any mortgage or loans. By law, the net worth of someone living or dead combines all their assets and investments. Anything that boosts your statements in the assets section is labeled as an estate.
Items included in estates are usually non-current assets, meaning owners are legally required to pay taxes on them.
Depending on the size and value of the property, you might need to hire a financial planner or wealth manager accordingly. To include estates, you must first create a plan to get them in order.
What does an estate planner do?
An estate planner helps people prepare for life events like retirement, death, divorce, and inheritance. They help clients consider their personal goals and values and advise how to achieve them. A good estate planner knows their field well enough to advise clients about what strategies are most likely to work.
Estate planning involves many professionals, including lawyers, accountants, bankers, insurance agents, and tax experts. Some people use a single professional for all aspects of their estate plan; others hire several specialists.
What does a financial planner do?
A financial planner helps people set and achieve long-term financial goals. They do this by assisting clients in developing a personal financial plan that considers their current situation, future needs, and risk tolerance.
Financial planners work closely with their clients to identify their financial goals, such as saving money for college tuition, buying a home, starting a family, retiring comfortably, etc., and determining how much each goal requires. This process involves creating a financial plan that outlines the steps needed to reach those goals.
The plan identifies both short-term and long-term financial objectives. Short-term objectives include:
- Paying off credit card debt.
- Building emergency savings.
- Investing in stocks and bonds to generate income.
Longer-term financial goals include having enough money saved for retirement, purchasing a house, or funding a child’s education.
Why do you need to include estate planning in your financial plan?
In general, it’s advised that estate planning be included in your financial planning. You never know what could happen. Even if you’re healthy and wealthy, there are many reasons why you might die unexpectedly. Death is unpredictable and often sudden.
This includes unexpected medical issues, accidents, natural disasters, and suicide. Your family members and friends may not understand what to do with your assets, especially if you haven’t prepared ahead of time. They may assume that everything goes into a trust fund for your kids. Or worse, they may take advantage of your situation by taking advantage of your loved ones.
Steps to Include Estate in Your Financial Plan
There are no words to emphasize the importance of including an estate plan in your finances. Giving you peace of mind regarding property shares and investments also removes the headache of who gets what after you leave for your final abode.
Here are the steps to create a good estate plan that lasts:
Calculate Value of Estate
Let’s start with the most basic and mandatory requirement. It would help if you calculated the market value of all your assets like real estate, bank balance, insurance, and investments. Apart from this, it is essential to include other valuable assets like gold that have a long-term life.
Calculating and sorting your estate items gives you a detailed overview of how much you made in your life. Plus, it enables the owner to decide who gets what in their life. After getting a figure of your net worth, it becomes easier for your financial planner to measure taxes.
You can hire a professional to calculate estate value with better accuracy.
Find Out the Beneficiaries and Heirs
Once all your assets are mentioned, you need to find out who gets what. For some, dividing property between spouse and children might be an essential practice. However, the inheritance laws depend on the country you live in. For instance, in some American states, people cannot disinherit their spouse from the will. On the other hand, Islamic countries follow sharia inheritance laws and distribute them accordingly.
While we are on the topic, it is essential to distinguish between the beneficiaries and the heir. An heir is your blood relative and the direct successor of your business. On the other hand, a beneficiary is someone you write your will to. They can be a trust, a social welfare home, a business, or someone who has been with you. An heir is automatically subjected to your estate, but a beneficiary requires paperwork and legal documentation.
It is essential to clarify both terms in your life.
Manage Your Taxes and Dues
Now comes the part most of us detest. The saying, ‘nothing in this world is for free, even love,’ comes true in this case. Whether it’s your property, income, or investments, you need to pay tax liability on it.
We already discussed the impact of a financial planner on your tax liabilities. You can easily hire one to take care of taxes, so you are charged a reasonable amount after every fiscal year.
In most cases, estate owners have to pay taxes regularly. However, with minor diversions and changes in statements, it is possible to avoid certain areas of taxation. Just make sure not to hide anything illegally, or you might be in big trouble.
Create a Will
You must think it is too early to think about a will. But hey. We never know. You can hire an attorney to work with you and elaborate on all the assets included in the estate. It is a life and death decision so perform it with full responsibility.
A will covers everything on how you wish your assets to be distributed among the rightful owners. You can also include non-financial things like the burial process and last wishes. Hire a power of attorney who is reliable and trustworthy and would give you the right advice.
Do not hesitate to discuss things that you still don’t know about. This will become written proof in your life in case anyone creates a hurdle or tries to meddle with estate assets.
Sign the Estate Plan Documents
This might be the easiest step of them all, but one cannot just deny the responsibility that comes with signing the final documents. Your lawyer and financial planner will draw up all the docs you need and get them ready to sign and execute. You can also have more than one witness as visual proof if anything goes wrong.
We consistently emphasize hiring a trustworthy attorney because improper document execution can invalidate. This means your will won’t be honored in the court or among loved ones.
Consistently review your estate and ensure that everything is as you left it. It also helps clarify decisions regarding beneficiaries, heirs, and financial planners.
Don’t make these estate planning mistakes
The biggest mistake people make when planning their estates is failing to plan. People don’t think about what happens to their assets after they die.
Most Americans don’t even know where their wills are located, let alone whether they’re up to date. And while many assume that someone else will take care of their affairs once they pass away, she points out that legal requirements must be met to ensure this happens. The other most coming estate planning mistakes are:
Unfunded trust
Some estate plans do a great job of protecting assets and minimizing taxes. But there are many ways a trust could fail to fund correctly, including forgetting to make changes to the account names, not having enough money set aside to pay income tax, and not having enough money set up to cover expenses like probate fees.
Here’s why this happens: If you die without setting up a trust, your property passes directly to your heirs, who must pay inheritance taxes on the total value of the property. If you don’t have enough money to cover those costs, your family members will pay more taxes than necessary.
Not updated beneficiaries
When you die, your estate plan determines how your wealth gets distributed among your loved ones. If you haven’t updated your beneficiaries lately, it could mean that your heirs won’t receive what you intended them to inherit.
If you aren’t sure whether your beneficiaries need to be updated, here are three questions to ask yourself:
1. Have you changed where your assets are held since creating your trust or revocable living trust?
2. Are your beneficiaries still capable of handling the money?
3. Do your beneficiaries know about the changes?
Unlisted guardians of minors
The law requires you to list guardians for your minor children. This includes naming someone who will care for your child if something happens to you. If you don’t do this, the state will step in and decide for your kids. But how does someone become a legal guardian? And what are some common mistakes people make when choosing guardians?
Many parents make the following mistakes when choosing guardians:
1. Not thinking about the emotional needs of the child.
2. Choosing a relative over a friend.
3. Overlooking financial stability.
4. Forgetting to put down power of attorney.
5. Omitting a will.
Not communicating your estate plan
We don’t communicate about our plans because we think our loved ones will automatically do what we want. However, this isn’t always true. Many things happen during a person’s lifetime that can affect how their estate is distributed.
These include health issues, accidents, divorce, and even death. So, ensuring that your family understands precisely what you want is essential.
If you haven’t done so, now is a good time to sit down with your lawyer and discuss your estate planning needs. You’ll find out what documents you need to complete your plan and learn how to avoid common errors.
Key Takeaways
Estate planning is an essential but often neglected part of your financial plan. Including it in your plan is critical so you can plan your will and inheritance effortlessly.
We discussed a step-by-step procedure to create an estate plan that elaborates your assets, investments, taxes, and shares, making it convenient to keep track.
Plus, make sure to hire someone trustworthy and with tons of experience, so you do not have to worry about any chances of fraud and illegal activities. Keep reviewing your estate plan to confirm that all your assets are in the right place and managed properly.
