Many people believe they don't need estate planning because they think they don't have an estate. Or they think the value of their estate is not great enough to cause estate taxation, so what's the point?But with few exceptions, everyone has an estate -- even the young child with a custodial account in his name and the granddaughter who received a lovely piece of jewelry for her 16th birthday.
Bottom line: If you own something of value that you would pass on to someone else upon your death, you have an estate. Whether you know it or not, you also have an estate plan. The state has one for you free of charge (well, sort of) if you don't get around to writing a will or designing a plan of your own.
Broadly speaking, an estate plan encompasses the accumulation, conservation and distribution of an estate. A good plan will enhance and maintain the financial security of individuals and their families.
You need certain documents to meet your estate-planning goals and a basic understanding of the way it all works.
Estate planning basics:
- Wills: the cornerstone of all estate plans
- Trusts as a complement to wills
- The estate tax system: how it works
- Quirky rule change coming up
- Gift tax on generosity
- State death tax may apply
Wills: the cornerstone of all estate plansA will is a personal declaration of your intentions about the disposition of your property at death. Everybody should have one.
Because a will does not become legally enforceable until your death, it may be changed at any time before the maker's (testator's) death or mental incompetence. A properly drafted will contains instructions for your personal representative, the executor. The executor is responsible for administering your estate.
A will offers many advantages, enabling you to control, to a large extent, what happens after you're gone.
With a will, you can:
- Choose the executor.
- Designate a guardian for minor children or others unable to fully care for themselves.
- Distribute your property to beneficiaries you choose.
- Be generous to charity at death.
- Minimize estate tax.
- Get a sense of accomplishment and peace of mind.
A person who dies without a will dies "intestate." Dying intestate can be unnecessarily costly for your heirs and leaves you with no specific say about who receives your assets or in what proportion they should be distributed.