When most people think about estate planning, they think about creating a will. While a will can be a big part of your estate planning, it doesn't cover everything, and there are more questions to answer than who gets what. Be sure to consider the following when creating your estate plan:
Death and taxes aren't just the only certain things in life. They're also an inseparable couple. When a person dies, numerous taxes kick in including estate taxes, inheritance taxes on those receiving gifts, property taxes when real property is transferred or sold, taxes on capital gains when investments are sold, and more.
Tax rates vary greatly depending on your current state of residence, the value of the estate or the piece of property being taxed, the income of the person receiving the gift, and other factors. When planning how to divide your estate, work with an attorney or accountant to find ways to minimize taxes and make sure that gifts that are intended to be equal actually are.
Estate planning isn't just about what you want to give to other people. It also covers how you want to be taken care of if you are unable to care for yourself due to age, illness, or sudden injury. Powers of attorney and healthcare proxies can ensure that your family members are able to make decisions on your behalf without going through lengthy and costly court proceedings to establish guardianship. You may also want to include provisions about how much of your assets you want spent on treatment and extended care.
When you divorce, most provisions leaving gifts to your spouse or granting them power of attorney are automatically invalidated. But you need to make provisions for who you want to step in in their place — and this isn't just for divorce but if they're killed or incapacitated as well. Provisions regarding children and extended family are more likely to remain enforceable, but would you feel the same way if you divorced?
Do you know your entire family? Is there someone or a branch of your family you don't talk to? If you don't consider every possible family member, it may lead to your will being challenged down the road. Even if that person doesn't win anything, it will still mean more legal fees and time spent in court for the rest of your family. Where they might succeed is if you've created a blanket provisions, such as to all your cousins, so be sure to add any appropriate constraints.
Have you made sure your pets will be taken care of if the unthinkable happens? Even if someone has agreed to take them in, they may not have the necessary financial resources to give your pets the same level of care you did, or they may have different ideas about how much to spend on pets. To help avoid these problems, you can leave money in a trust for your pets that specifies how they are to be cared for.
It's easy to fall into the trap of making an estate plan based on a snapshot of your life today. But what happens when you start making more money, acquire new assets, and your family's composition changes? Be sure to create remainder provisions in your will, create broad provisions that cover future births, such as by saying to be divided among all your grandchildren, and assign gifts proportionally rather than by specific dollar amounts whenever possible. While those steps are a good start, to truly make sure your estate planning documents will do what you want them to, you'll need to regularly review and update them.