A widely held misconception says that estate planning is only for the wealthy, as a way to save on taxes.
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A story on cnbc.com says that nothing could be further from the truth.
Estate planning is about giving what you want to whom you want, how you want and when you want – with the least amount of taxes and expenses, the story says.
Your estate includes anything you own or control — your home, retirement accounts, a business or proceeds from a life insurance policy.
A will names the person who will distribute the estate and the recipients. Everybody should have a will, the story says.
Those without a will will have their assets subjected to the whims of state law.
But trusts can play an important role.
For one, they can save time and money by avoiding probate. There are other reasons too.
A revocable living trust can be established by parents to segregate any existing assets from those of a future new spouse and protect their own children from the negative impact of a second marriage, for example.
Say a married couple with two children has a will and enough resources to support the surviving spouse and children should the husband pass away. That’s great. But if the widow remarries, puts her assets in joint name with her new husband, the children from the first marriage are effectively disinherited.
A living trust sets the terms according to what the parent thinks is in the children’s best interest. Most young people would have trouble managing a large windfall.
If you are self-employed, who will run your business if you pass away? A trust could set out the terms of who might take it over and how.
And there is the matter of estate taxes of course. The story recommends you talk to your estate planning attorney to come up with a plan that would minimize federal and state inheritance taxes if they apply to you. While there is currently a federal exemption for estates worth under $5.34 million, states may impose taxes on estates worth considerably less than that.
