Chances are you already have a last will and testament. (If not, that should be your first priority for the sake and sanity of your loved ones.) But you could also make life much easier for your loved ones (and yourself) if you prepare a comprehensive estate plan.
A well-conceived estate plan can accomplish two important goals—it can protect your assets during your life and streamline the dispersal of your assets to your beneficiaries after you’re gone, while minimizing their tax burden. A trust also allows you to set the terms and conditions upon which those dispersals are granted.
In essence, a trust is an assortment of legal documents that lay out the terms of the administration and disposition of an individual’s assets—which, as you might note, sounds almost identical to the objective of a will.
So why go to the extra time, effort and expense of preparing an estate plan? The fact is, a will is one component of an estate plan, but there are other elements that give an estate plan far more power and flexibility:
- An estate plan offers you immediate financial benefits. A trust within an estate plan can protect your assets and minimize the taxes on some of your investment gains while you are still alive.
- It streamlines the disbursement process by bypassing probate court. Otherwise, your beneficiaries might be forced to settle your estate in court in a divisive legal battle that could drag on for many years at a cost of thousands of dollars.
- It gives you the opportunity to set more explicit terms on the dispersal of the assets. For instance, money can be doled out in delayed installments or when certain goals are obtained, such as graduation from college. A trust gives you a great deal of flexibility to rule over the disposition of your estate for many years after you’re gone.
- It minimizes inheritance taxes. An estate plan can be structured in a way that minimizes the taxes that your beneficiaries pay on their inheritance, giving you the benefit of passing more of your money to your loved ones and less to Uncle Sam.
- Provides for care and oversight. It gives you the chance to choose the type of care you’ll receive and to designate specific individuals to manage your money and your health care decisions when you are no longer capable of making those decisions on your own.
- It can avoid investment gains taxes for your charitable endowments. Certain trusts can be structured in a way that transfers your invested assets, such as stocks, directly to a charitable organization without paying taxes on the gains.
Setting up an estate plan requires the services of an experienced estate attorney. It is also helpful to involve your investment advisor, your tax accountant and any other key advisors in your estate planning decisions.
While it entails a fair amount of time and effort on your part, setting up an estate plan will ultimately make your life easier while sparing your loved ones from a significant tax burden, as well as many difficult months or years of costly litigation.
(For more see The Most Powerful Elements of an Estate Plan and Duties of an Executor.)
This information is not intended to be a substitute for individualized legal advice.