Proper estate planning can make sure that your wishes are carried out and your possessions go to your loved ones after your death. However, you may have some questions about how the estate planning process works.
Key estate planning terms to know
As you embark on the estate planning process, you're likely to come across some unfamiliar terms. The following list isn't a complete glossary, but it will give you a good understanding of the most common terms.
Estate: Everything you own. This includes your home, business, vehicles, and jewelry, but also takes smaller items into account.
Estate planning: The process of making arrangements for your estate if you die or become incapacitated. Living wills, last wills, and trusts may all be part of your estate plan.
Wills: There are two types of wills. Last wills give instructions for your estate after your death. A living will outlines your wishes for medical care if you become unable to make decisions.
Trusts: Trusts can take several different forms. Most people use trusts to minimize estate taxes and avoid probate. A trust is often similar to a will in that it gives instructions for the care of your belongings, but a trust can go into effect while you are still alive.
Estate tax: A tax on your belongings after your death. However, estate taxes are really only a concern for wealthy individuals. For 2015, estates worth less than $5,430,000 do not require the people who inherit them to file an estate tax return.
Probate: The process of validating a last will. The person you appoint as the will's executor is responsible for making sure that your wishes are carried out. The executor may have to gather documentation proving the value of your estate.
What an estate plan involves
Your estate plan should be as complete as possible. Three things to make sure you address are end of life care, inheritances, and life insurance.
End of life care: Arrangements for end of life care should be included in your estate plan. Having a living will is essential for this. You may also want to talk to local funeral homes and crematoriums so you can make arrangements for your remains.
Inheritance: Carefully consider who you would like to have inherit your possessions, and make sure to follow state law when doing so. Each state has its own unique laws on estate planning. If you do not complete all the necessary paperwork, your property may go to places other than where you intended.
Life insurance: Having insurance may help your heirs cover the estate tax if it is a factor. Otherwise, it will help to pay off your final debts and may provide a financial cushion for your loved ones.
When to hire an estate planning lawyer
You may be able to take care of estate planning without the help of a legal professional. There are even online legal documents that a court may find acceptable.
However, you should at least talk to an attorney about your estate plan. Lawyers are familiar with local regulations. They can look over your documents to make sure that you haven't missed any important details.
Hiring a lawyer is particularly important if you wish to set up a trust. Because there are so many different types of trusts, you will need guidance on which type is the most appropriate for your situation. A lawyer can also advise you on how to change the terms of a trust or a will if it becomes necessary.
Why you should have an estate plan
Your estate includes everything you own. In other words, everyone who owns something has an estate. Even if you aren't wealthy, an estate plan can give you and your loved ones peace of mind.
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