estate planning can help maintain generational wealth

More than 60% of Americans don’t have a will, much less a full-blown estate plan. It’s understandable. It can feel morbid to think about what happens after you die. 

Yet many of those same people have life insurance, precisely to safeguard the finances of loved ones should they pass away unexpectedly.

People sometimes use the words will, estate plan, and trust interchangeably, so let’s get a sense of what each process can and cannot do for you.

At a minimum, write a will.

A will is a legal document which expresses to the state how you want your assets to be distributed after your death. 

It’s important to have a will because not having a will means that the distribution of your estate will be performed by a court following your state’s laws. This process is known as probate. 

As a court proceeding, probate is automatically a public record. Anyone can read your will, find out about your assets and learn who inherited what amounts from you.

Moreover, distributing your assets through the court is expensive and can take months to complete. 

Then, if you need it, consider an estate plan.

An estate plan contains a will but includes much more detail. Your estate plan can help you decide in advance how to properly raise minor children potentially left behind, how to distribute money to minimize taxes on your kids, and decide if money should be allocated to charities.

An estate plan can include a trust, a lengthy legal document that essentially removes your assets from you, a person, and places them in the control of the trust, which is comparable to a corporation. 

You in turn become the trustee. You thus retain access to your assets, though technically they belong to the trust. You can designate your spouse (who is a co-trustee) and your children as the beneficiaries of the trust.

You then designate a third person, a family member or personal attorney, to act as trustee after your death if your spouse cannot do so. 

Finding the right path

There are several trust types, such as revocable, irrevocable, and charitable remainder trusts. Each has a different legal effect and tax impact. A financial planner can explain your choices in detail, and you can have more than one trust if necessary.

As part of the trust document, your attorney is likely to suggest that you prepare formal instructions on how to manage your health if you cannot communicate due to a stroke, coma, or other catastrophic disability, known as an advanced health directive or living will. 

Do you need a trust? It depends. 

Anyone with significant assets, or even a highly appreciated home, should consider a trust a key piece to a thorough estate plan, rather than drafting only a will. 

For instance, if you decide that privacy and avoiding the delay and expense of probate are important, creating a trust becomes a key step in the estate planning process.

The point of an estate plan is not to focus needlessly on your eventual demise but to create an actionable plan for your assets, then let go of those worries. 

Financial planning is about living your best life now, knowing that care will be taken later on to put your true financial wishes into practice.

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