How to Create an Estate Plan

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 What is an Estate Plan?

An estate includes the sum total of an individual’s:

  • Belongings;
  • Property;
  • Money; and
  • Assets.

All of these combined are referred to as an individual’s estate. An estate plan includes a comprehensive strategy for managing and passing on an individual’s:

  • Assets;
  • Insurance; and
  • Health directives.

An estate plan should include plans that detail how the estate is to be divided and distributed to the beneficiaries, or recipients of property, when the owner of the estate passes away. An estate plan is important for individuals, families, and couples alike who want to plan ahead for their future. An estate plan can be used to manage the different pieces of their net wealth as part of a whole.

Is an Estate Plan Different from a Will?

An estate plan and a will are not different. Rather, a will is a legal document which is created and specifies who should inherit any material property or assets upon the individual’s death.

Typically, a will is included as part of a comprehensive estate plan. In addition, an estate plan is also likely to include other financial management instruments, which may include a trust or multiple trusts which may take effect while an individual is still alive.

An estate plan can be tailored to each individual based on their unique assets, needs, and desires for their estate. An estate plan is far more comprehensive than just a will, should an individual wish to create one.

How Do I Create an Estate Plan?

The creation of an estate plan involves identifying and making a comprehensive list of all of the components of an individual’s wealth. This may include:

  • Property they own;
  • Stocks;
  • Holdings;
  • Cash;
  • Savings;
  • Insurance policies; and
  • Health policies.

Individuals who have disabilities or have disabled beneficiaries may have to create a specific estate plan to meet their needs. Many individuals draft a will as the foundational document to begin the overall process of creating an estate plan. This is usually the legal instrument which contains the instructions and preferences for the distribution of the property in their estate.

The next step for an individual creating an estate plan is to consider any assets which they wish to leave in a trust and to establish a trust or trusts for those assets. A trust is established by a grantor, or the estate owner, who:

  • Assigns any trustees and beneficiaries;
  • Creates guidelines for the trust; and
  • Moves assets or gifts into the trust.

The trustee is the individual who is tasked with managing the property contained in the trust. The beneficiary is the individual who will ultimately receive the property held in the trust.

A trust may be useful to transfer property to a recipient prior to the estate owner passing away. This may have several benefits depending upon the type of property and the type of trust which is involved.

For example, it may be possible to avoid certain taxes using a trust. In addition, property transfers done by trust can make the overall estate distribution process easier and more simple after the individual passes away.

What Else is Needed to Create an Estate Plan?

There are other components which may be necessary to create an estate plan, depending on an individual’s needs. An estate plan should include a power of attorney who will be designated in the event that the owner of the estate is no longer able to manage their affairs. A power of attorney permits the estate owner to designate another individual, called an agent, who is allowed to make legal decisions on their behalf.

Another important component to an estate plan is a set of health care instructions. The individual who is creating the estate plan has to decide if they want the same individual managing both their financial matters and health care matters or if they want to designate separate parties for each task.

The next important component of an estate plan is the establishment of insurance policies, especially estate planning life insurance. In many cases, life insurance will cover the payment of estate tax or debts after an individual passes away.

It is also necessary to calculate the potential taxes which the federal government may collect after the individual passes away and to select a policy which will cover all of those expenses as well as funeral expenses. It is also advisable to insure a business venture or business.

The last step is ensuring that the documents of an individual’s estate plan are accessible to those who need them when the time comes. This is best handled by an estate planning lawyer who can also store a copy of the documents if they are needed.

What are Some Other Factors I Should Consider When Creating an Estate Plan?

When an individual is creating their estate plan, it may be helpful to broadly consider the various factors which may affect the distribution of their estate. Every state is different and every individual will own different property and assets as well as have different amounts of financial savings.

Some of the factors which an individual should consider when creating their estate plan may include:

  • Who will receive their property;
  • The type of property which is involved; and
  • The local state laws regarding wills, trusts, and estates.

An individual should consider who they want to receive their property, or to be their beneficiaries, when they pass away. A beneficiary is an individual who receives portions of assets and property.

In many cases, this will include close family members, such as:

  • A spouse;
  • Children; and
  • Siblings.

It may also include more distant relatives, friends, and possibly even business associates. The beneficiaries should be stated clearly in order to avoid any disputes or conflicts. This is usually done in the will document.

An individual should closely examine the types of bank accounts, assets, and property they own. This may determine the way in which an individual’s property from their estate is divided.
For example, they may want a certain family member to receive real property, which may include a home, while they may want other family members to receive security assets and stocks. The way an individual’s property is divided is totally dependent upon their preferences and desires.

It is also important to understand how the local laws regarding wills, trusts, and estates, or the local estate planning laws will affect the estate plan. Estate planning laws may be different in every state.

These laws may affect the way an individual is allowed to distribute and allocate their estate property. If an individual has any questions regarding the specific estate laws in their area, they should contact a local attorney.

Do I Need a Lawyer for Help Creating an Estate Plan?

It is necessary to have the assistance of an estate lawyer when creating an estate plan. Creating an estate plan can be a very complex process and may involve numerous components as well as numerous parties.

Your lawyer can advise you regarding the way different divisions of property may affect your tax liability. Your lawyer can also assist you in drafting any and all estate planning documents you determine are necessary for your estate as well as store those documents for future use.

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