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5 Estate Planning Tips To Look After Your Money

Thinking about a time when you’ll no longer be around can be daunting. You may be scared of the unknown, especially when it comes to where your assets will go and what your family will do.

Posted: 2nd February 2022 by
Finance Monthly
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Even though you won’t be around to play a part in managing your estate, you do have a say in what happens with it once you’ve passed. Consider doing some of the following things to look after your money and loved ones. 

Create A Will

A core part of estate planning involves drawing up a will. A will or testament is a formal, legally-binding document that outlines your wishes once you have died, such as who you want to manage your estate and how you wish your assets to be divided. A will can also outline instructions for any dependents or pets. 

According to a 2021 Gallup poll, less than half of US adults don’t have a will, and the results have been relatively similar in poll results dating back to the 1990s. While it can be challenging to think about your passing and put instructions in place for how your family can manage it, it can be crucial to have your money and family looked after. 

Failure to create a will can mean that your estate is divided in probate court, and someone other than who you wanted may end up with your assets. Not making a will may also mean that your family can wait months, or even years, for a resolution, and the details of your probated will can be a public document for anyone to read.   

Name Your Beneficiaries

Telling certain friends and family members what they can expect from your estate upon your death doesn’t guarantee that your wishes will be followed. Unless you have legally named people and assets, there is a genuine risk of your wishes being contested. 

To prevent this from happening and ensure your money goes to the right people, legally name beneficiaries for your assets, and don’t forget to update them as the years pass. If you have a retirement fund or life insurance, you may be able to name beneficiaries at the time of their creation. 

In some states, such as Colorado, transferring properties to your loved ones upon your death can be made much easier with beneficiary deeds. These are legal documents that allow you to pass titles to property under a grantee-beneficiary at death, with no need for probate administration. These deeds must be recorded before your passing. 

Keeping your preferred beneficiaries up-to-date is crucial, for any discrepancies between a will and deed will see the deed beneficiaries prioritised. 

Set Up Trusts

It’s natural to worry about what your family will do with your money once you pass. You might have concerns about specific family members misspending it, or you have a large estate that will see someone receiving hundreds of thousands of dollars upon your death. 

One of the most sensible options to look after your money is a trust. You can appoint a trustee who will distribute your wealth as you see fit, and the money within the trust isn’t subject to estate taxes. However, once your assets are in a trust, they no longer belong to you. 

Setting up trusts can be a complicated undertaking, particularly when several assets are involved. Estate planning attorneys may be necessary for ensuring your money is taken care of how you would have preferred. 

Gift Your Money

Money giftWhen your estate is subject to hefty taxes that could see your family members receiving less than you would have liked, consider gifting them assets and money while you’re still alive. In the US, you may give one person up to $15,000 per year without having to pay tax. However, if you plan to gift assets in this way, be mindful of value appreciation. Depending on when you provide the gift, they may need to pay tax on it if its value is adjusted upon your death and ends up being worth more than $15,000. 

Switch To Roth Accounts

Your heirs may be required to pay a significant amount of tax on an IRA or 401(K) account, which means they may not receive as much as you had anticipated upon your passing. This is especially true on accounts with large balances since heirs must withdraw all money from the account within 10 years. 

By converting your traditional retirement accounts to Roth accounts, your heirs may be able to make tax-free withdrawals. They will still need to pay income tax, but it will likely cost less than it would if you hadn’t converted the account. 

Final Thoughts

As challenging as it can be to think about your death and the future of your assets when you pass, it can be necessary to ensure your money is managed in a way you would have wanted. Now might be the right time to put a will in place and start thinking about family members you’d like to take care of.

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