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The Basics of Estate Planning- 3 Fundamental Questions To Get You Started

April 01, 2013

Estate planning involves many moving parts. Knowing what to concentrate on can ensure your assets are distributed according to your wishes.

One of many people’s first thoughts about estate planning is usually taxes. Although taxes are an important consideration, estate planning involves much more than simply reducing your taxes. It’s primarily about ensuring that your assets are distributed according to your wishes and preparing for the future. The following basic questions are important if you are just starting to put a plan together or revisiting the viability of an existing plan. Since estate planning isn’t just about reducing taxes, you need to consider or reconsider the following:

Who should inherit my assets? If you are married, before you can decide who, you need to consider marital rights. Different states have different laws that have been put in place to protect surviving spouses. If you die without a will or living trust, state law dictates what portion of your assets pass to your spouse rather than as you may have intended had you taken the time to put your plan to writing.

Even with a will or living trust in place, if you provide less to your spouse than state law deems appropriate, the law may allow the survivor to elect to receive the greater amount. Another consideration you have to take into account is if you live in a community property state or if your estate includes community property, the rules may be different and the impact of your decisions much greater.

After addressing and considering your spouse, you should also ask yourself:

  • Do I want to leave any assets to charity?
  • Should my children (if any) share equally in my estate?
  • Should I include grandchildren or others as beneficiaries?

Which assets should they inherit? There are many different family situations but it is critical to spend extra time examining the nature of all of your assets as certain assets lend themselves to more complexity than others.

For instance: If you own a business, should the interests pass solely to your children who are active in the business? Should you compensate the others with assets of comparable value?
If you own rental property, should all beneficiaries inherit them? Only certain family members may have the ability to manage the nuances of a real property business? What are the cash needs of each beneficiary?

When and how should they inherit assets? The potential age and maturity of the beneficiaries, tax implications, and the financial needs of you and your spouse during your lifetime are all factors that need to be focused on.

Outright bequests, a transfer of assets without limitation as to when or for which purposes the recipient may use such assets, could also simplify this process, allow for more flexibility and even have some tax advantages. However, you would have no control over how the recipient uses the assets.

When dealing with children or those who may be too young to manage large assets, trusts are a great alternative. Although trusts add a degree of complexity, they offer a variety of tax as well as non-tax benefits such as creditor protection.

If you have any questions about your estate plan or would like to talk with a qualified estate planning advisor, please contact the KLR Wealth Tax and Advisory Group.

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