Studies show that 83 percent of people don’t have an estate plan, and the consequences of this omission are serious.
Without an estate plan, the state will get to decide who inherits your assets.
Unsurprisingly, the biggest beneficiary will be the state.
The costs of probate court will strip away your financial legacy before it ever gets to your intended heirs.
So if you haven’t wondered how to start estate planning, maybe it’s time to start.
Wait, what’s an estate plan?
An estate plan is not to be confused with a will, but the will is a necessary component of any good plan.
Sixty percent of the populace lacks even this basic element of estate planning.
The place to begin with your will is by reviewing the beneficiaries of individual accounts you may own, from 401(k) to life insurance.
It’s important to note that the beneficiary listed on these accounts will supersede anything that is in your will for this portion of your assets.
It’s quite common for people to get married and have kids after they’ve set up their 401(k) paperwork, but then fail to update beneficiary information.
What’s included in an estate plan?
Your estate plan is broader than simply listing the people you want to inherit your money though.
Getting your health care wishes in place, establishing durable power of attorney in the event you become mentally incapacitated and even stating your preferences for funeral arrangements are all important parts of an estate plan.
Finally, a smart estate plan does more than just specify who is to get money and how much.
A truly strategic plan will be set up to distribute the money in the most tax-friendly way possible.
This is where a trust comes in.
A living trust can be set up to shield your beneficiaries from taxes, dictate terms of distribution (e.g., requiring children be of a certain age before inheriting) and protect your offspring from ex-spouses if necessary.
Estate planning can seem complex, and in many ways it is.
But it’s easy to begin.
So start thinking about how you want your financial legacy handed down and reach out to a professional.
You can also start with these five tips to keep your money in your family.