Estate planning is an important tool that allows you to ensure that your money goes where you want it to after your death.
Unfortunately, poor estate planning could have the opposite effect, reducing the amount of assets that go to your family. How can you pass on these assets while losing as few as possible?
The components of a good plan
The U.S. News and World Report discusses the numerous benefits associated with estate plans. Generally speaking, estates with less than $11.58 million in assets do not have to worry about federal taxes. However, they are still subject to state, local and income taxes.
Thus, a good, solid plan will include a will, designations for beneficiaries, trusts, Roth conversions for any traditional retirement accounts, and gifts.
You need the will to avoid your assets going to probate court. Not only could this lead to additional taxation of your estate, but it might ruin any plan you had for specific asset transfers.
Make sure to revisit your will often to ensure that it is up to date with your wishes. It should also reflect any changes to local or federal tax law.
Utilizing gifts while alive
Finally, consider the role of gifts. The IRS allows you to give up to $15,000 every year to individual recipients without this money getting taxed. This is a good way to reduce taxable estate while ensuring that the money goes where you want it.
You can also donate to charity. Setting up a donor-advised fund will get you immediate tax relief, and it also lets you give to charity over time. In general, it is a net benefit on all fronts.