• 13
  • February
    2012

Estate planning isn't just a tool for the wealthy. To the contrary, nearly everyone can benefit from having an estate plan in place, even if they have modest assets.

Estate plans are important because they let you control what happens to your assets after you die. Without one, the state gets to make that decision for you.

However, many people put off estate planning because it seems like a daunting task. They want to make a plan, but they don't know where to start. The reality, though, is that the estate planning process isn't nearly as confusing as it sounds. Most people can make a workable plan by keeping a few simple principles in mind:

Who gets your money, and how should it be spent? The first step to any estate plan is to decide who should receive your money, property and other assets when you die. However, you will also need to decide if you want those assets to be used in a certain way. (For example, are you giving money to your grandchildren with the intent that they use it to pay for college?) If so, you will need to state that in the will, and you may need to set up a trust as well.

Strive to minimize tax liabilities: Both income and estate taxes will come into play. If your estate is large enough to trigger tax liability, work with your estate planning lawyer to find ways to minimize what you owe. For example, you could give your taxable assets to charity and give your tax-exempt assets to your other beneficiaries.

Consider life insurance: Life insurance proceeds pass to your beneficiaries tax-free. So, if you estimate that your beneficiaries will owe $100,000 in estate and income taxes, you may want to consider purchasing a $100,000 life insurance policy to make up that gap.

Get help: Making your estate plan by yourself is risky; little mistakes can mean big problems down the road. In addition to consulting with an estate planning attorney, you may also want to consider talking with a tax professional and a financial advisor. It is always better to be proactive on the front end than to take a risk that your estate plan will not be carried out after you pass.

Source: San Francisco Chronicle, "5 Estate Planning Tips," Denise Appleby, Feb. 7, 2012.