An estate plan aims to preserve the maximum wealth possible for the intended beneficiaries, while providing financial flexibility for the plan’s owners throughout their lives.
Most Americans can benefit from estate plans, but more than half don’t have one in place.
Why have an estate plan?
There are many compelling reasons to have an estate plan, including:
- Offers the most effective way to ensure your family is provided for and assets are distributed according to your wishes
- Provides the best way to reduce the exposure of your assets to estate taxes
- Gives you peace of mind that your financial affairs are in order and that your survivors will not face a costly administrative nightmare, creditors or lawsuits.
Even small estates can have problems
You have an estate if you own any property, including cash assets. Regardless of how large your estate is, proper planning can prevent your family from becoming embroiled in controversy over how to divide your assets after you pass away.
Elements of an estate plan
Estate plans have several elements:
- A Will is usually the plan’s core document for distribution of assets at death
- A Power of Attorney provides management of assets during lifetime in the event of incapacity
- An Advance Directive for Health Care authorizes someone else to make health care decisions if you are not able to, and allows you to communicate your wishes on the use of life sustaining procedures.
When to begin
A good time to begin your estate plan is when you get married, or when you are expecting your first child.
Many people will do more extensive planning later, perhaps when they are in their 50s, or in the pre-retirement stage.
An appropriate time to take action and evaluate your assets is when your focus begins to shift from earning a living and taking care of yourself to making sure your loved ones and favorite charties are cared for after your death.
How to begin
The process of creating an estate plan begins by gathering all important documents and taking an inventory of assets. Most estates are larger than their owners realize.
Assets include the home, savings, insurance policies, investments, retirement plans and business interests.
Seek professional advice
When you are ready to design your estate plan, you should enlist the help of professionals such as an attorney who specializes in trust and estates, your financial advisor, and your accountant. Be open with them about your goals and concerns for yourself and your survivors.
Include charities
One of the most effective elements in estate planning is also one of the most popular forms of planned gifts to charities: a bequest in the Will.
Bequests work particularly well if you are unable to make an immediate gift but would like to support a favorite charity in the future.
Advantages of charitable bequests are:
- Charitable gifts made through Wills are typically 100 percent deductible for federal estate tax purposes
- Charitable bequests may place an estate into a lower tax bracket
- Donors may specify the way the funds are to be used
- Donors may continue to use assets during their lifetimes
- Donations are flexible and revocable
- The process is as simple as designating the chosen charity in the Will.
Create a legacy
Including a charitable bequest in a Will does not cost anything now, but it enables you to address your wishes and create your legacy.
If you change your mind about a charity included in your Will, you can revoke the bequest the next time you update your Will.
Charitable bequests provide many tax advantages and offer a way to contribute to multiple charities, rather than having to pick just one.
By John Stewart
Director of Estate and Asset Services
American Cancer Society
