Guidelines for planning your estate

It is astonishing that although most American adults contemplate creating an estate plan, a recent survey concluded that only 44 percent have actually acted upon it. Unplanned estates may be subject to unnecessary probate litigation and may be divided according to state laws and not according to the wishes of the deceased. Planning an estate is absolutely crucial to ensuring desirable asset distribution. Several mechanisms, for instance, living trusts and financial and health care powers of attorney, are indispensable in estate planning.

First of all, a solid estate plan must be drawn up, which includes a will stating the division of individually owned assets upon death; there should be a living will communicating the individual's wishes regarding life-long treatment; there should also be a power of attorney assigning another person to manage financial and other matters if the individual is debilitated; and a revocable trust should be established, the provisions of which can be easily amended to change the position of a trust beneficiary.

Second, assets must be appraised to determine a person's financial net worth. Assets in this context not only mean tangible property but also insurance policies and employment benefits. Delineation of beneficiaries on these documents is necessary for asset distribution.

Third, it is of utmost importance to explicitly indicate to whom and how the assets are to be divided. Assets may be inherited by successors in a direct manner or be distributed through a trust. Also, a guardian must be appointed to manage a minor's estate until he or she attains maturity.

Fourth, tax liability must be assessed. In 2013, the fiscal cliff agreement was ratified in which individual estates not exceeding $5.25 million and community estates worth $10 million can avoid federal estate taxes. Amounts in excess of the exclusion amount are taxed at 40 percent. Taxes will certainly have a major role to play in the inheritance of assets by the heirs.

Finally, a person must keep re-evaluating and updating her or his estate plans based on major life events, such as the birth of a child, a medical emergency or a divorce. This would help the individual to make the best use of investments and to minimize the prospect for external challenges, such as those from discontented family members.

Source: Ahwatukee Foothills News, "5 steps to help create an estate plan," Steve Diltz, Feb. 24, 2014

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