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What’s the First Step in Estate Planning?

What’s the First Step in Estate Planning
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For young professionals finding their way in the world and just beginning the journey of building wealth, death can seem like a far-off abstraction. However, the cold reality is that no one ever knows what’s around the corner — health problems and freak accidents can happen at virtually any time.

 

Forbes’ recent article entitled “A Love Letter to Your Heirs” explains that not having an estate plan is risky, almost like riding in a speeding car on the freeway without wearing a seatbelt. However, it’s never too late — or too early — to put one together.

The first step is to create a vision of your future. Consider the most important people in your life or your charitable goals. This list should help with the distribution of your assets. Then, plan who gets what, both when and how.

Remember that you can modify your estate plan over time. You should also develop and implement a financial plan to provide ongoing guidance for your long-term wealth accumulation goals. Continuous modification means reviewing your will regularly, especially if your investment portfolio becomes more complex and when your family situation changes, such as the birth of a child or even a divorce.

Work with an experienced estate planning attorney to implement tax mitigation strategies to reduce or eliminate taxes. Keep in mind that different types of assets can and should get different treatment. For instance, you should handle assets you own outright with care. Consider assigning ownership for each treasured heirloom, even as that can seem tedious. Another option is to allow heirs to place bids on items, using money allocated from the estate.

Based on the asset and how liquid it is, the executor could either sell it to raise cash or retain it and then distribute it to heirs under the terms of the will. Other assets, such as those held jointly, will go directly to the surviving joint tenant, while qualified retirement plan assets — like IRAs, 401(k)s, 403(b)s, profit-sharing plans, and pension plans will go directly to a named beneficiary. Similarly, life insurance proceeds pass directly to a designated beneficiary.

In addition, your personal representative (executor) can sell any assets subject to a lien to pay off outstanding debt, or your executor can use cash from the estate to pay off the debt and retain the asset.

Bequeathing your estate to your chosen beneficiary or contingent beneficiary can be one of the most critical life decisions you can make for their future.

Even singles without children should have a will so that they can pass your wealth to a relative or someone else about whom you care deeply.

Reference: Forbes (Jan. 10, 2022) “A Love Letter to Your Heirs”