Choosing who will receive all you’ve worked so hard for after you’re passing without estate planning may not be fun to think about, but it is a necessity. You don’t have to be wealthy to pre-arrange your estate. Even if you don’t have an expensive property, sizable RRSP, or priceless artwork to leave behind, handling your affairs after your passing could have a lasting—and costly—effect on your loved ones without a plan in place. Consider our top 5 estate planning tips to make the most feasible estate plan.
1. Make a Will
Making a will is a key component of estate planning. A will is a detailed, legally binding document that states your desires for how your estate should be managed and distributed after your death. The directions for any dependents or even pets can be included in a will.
Based on a 2021 Gallup poll less than half of US citizens don’t have a will, and poll results from the 1990s have often produced comparable results. While planning for your death and leaving instructions for how your family should handle things might be difficult, having your finances and loved ones taken care of can be important.
Without a will, your assets may go to someone other than who you intended, which is why it is important to make a will so that you can avoid probate. Whether you are terminally ill or even in the best of health, you should start thinking about who your estate will belong to after you pass away. A probated will can become a public record that anybody can view, and not writing a will could leave your family waiting months or even years for a resolution.
2. Trustees and Trust Documents
Suppose you just bought your first house. Being concerned about what will happen to your wealth once you pass away is normal. You might be worried that some family members may misuse it, or you might have a sizable estate that will leave someone with a large sum of money after your passing.
A trust is among the most prudent ways to manage your finances. The assets contained in the trust are not subject to estate taxes, and you are free to name a trustee who will divide your assets as you see fit. Your assets will no longer belong to you once they are in a trust.
Trust creation can be challenging, especially when many assets are involved. Lawyers experienced in estate planning may be required to ensure your assets are managed according to your preferences.
3. Review Beneficiaries
Your wishes may not be carried out if you tell specific relatives and friends what they should anticipate from your estate after your passing. Possibly, your wishes will be challenged if you haven’t designated beneficiaries and property in writing.
Legally designate beneficiaries for your property, and don’t forget to change them as the years go by to avoid issues from occurring and make sure your wealth goes to the right people. You might be allowed to designate beneficiaries when a retirement account or life insurance policy is created.
4. Let Your Loved Ones Know How to Access Your Information
Estate, medical directive, and incapacity planning agreements are frequently needed on short notice. Make sure your family members are aware of how to find them.
For instance, many people keep their most crucial documents in a safe or safe-deposit box. You might not be able to grant your loved one’s access in an emergency. Share any lock combinations, keys, or access rights needed to view these important papers with your loved ones as a recommended practice.
There are advantages to talking about your wishes right away, even though sharing this information is a personal choice. This is your legacy; the more you give, the longer your legacy will endure, promoting family peace and reducing the likelihood of future disputes.
5. Change into Roth Accounts
If you are a resident of the USA, your beneficiaries may not obtain as much as you intended upon your passing if they must pay a substantial amount of taxes on an IRA or 401(K). Due to the 10-year withdrawal requirement, this is particularly true for accounts with significant holdings. Canadians share similar tax considerations for RRSPs beneficiaries.
An Individual Retirement Account (IRA) that accepts after-tax contributions is known as a Roth IRA. While there are no tax advantages for the current tax year, your payments and income can grow tax-free, and you can withdraw them without paying taxes or penalties after you reach the age of 59½ and the account has been active for five years.
If you anticipate being in a higher tax bracket in the future, a Roth IRA may be a useful way to save money because tax-free withdrawals are an additional benefit. Not everyone will qualify for a Roth IRA, though, as there are income restrictions for opening one.
Your heirs might be able to take money tax-free if you convert your standard retirement savings to Roth accounts. Even though they still have to pay their income tax, it will probably be less expensive than if you hadn’t switched the account. In Canada, there are other ways to create tax benefits. Speak to your accountant to learn more.
Conclusion
With an estate plan, you have control over how assets are distributed, who will look after your children, and who can make choices on your behalf. Your financial advisor can collaborate with your tax, legal, and estate planning experts to ensure your estate plan reflects your objectives. Review your plan from time to time as personal situations can change. Our top 5 estate planning tips will give you the head start you need.
