Whether your estate is large or small, nearly everyone can benefit from having a well-designed estate plan in place. But many people - even those who realize the importance of proper financial planning - haven't developed an adequate plan for their estate.
Some haven't developed an estate plan because they don't want to face their own mortality; others just can't seem to find the time to put a plan together. When it comes to estate planning, what's not done is often the biggest mistake that people can make.
You work hard to build your estate. Don’t you want to be in charge of who inherits it? Your estate can build a legacy for your heirs. By implementing proper estate planning strategies, you’ll be able to provide for your loved ones according to your wishes, while also planning for and protecting against unexpected events that may preempt your best-laid plans along the way.
Without an estate plan in place, federal and state laws will dictate how property, personal items, and assets are divided, with no regard for your wishes. Conflicts due to family issues and legal problems could result, tying up the estate and slowing down the distribution of assets. Additional administrative expenses and taxes, which must be deducted from the estate, can also reduce the overall value of your estate.
You can prevent this scenario by taking steps now to put together an estate plan.
- Take Inventory of Your Assets
For federal estate tax purposes, your assets include your investments, retirement savings, insurance policies, and real estate or business interests, as well as items like cars and collectibles. Next, decide who you would like to inherit your assets.
- Create a Will
Everyone needs a will. If you and your spouse die without a will, a state court judge will not only appoint a guardian for your minor children but will decide how to distribute your assets among your heirs in accordance with state law. If you have a large estate and fail to protect it from federal estate taxes, you could end up forfeiting tens or even hundreds of thousands of dollars to the IRS that otherwise could have enriched the lives of your children or beneficiaries.
- Consider Setting Up a Trust
Trusts aren't just for the wealthy. Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay, and publicity of probate court, which administers wills. Some trusts offer greater protection of your assets from creditors and lawsuits. In addition, there are many non-tax reasons for having a trust, especially when your trust beneficiaries are too young, or otherwise unable, to manage your property themselves.
- Name Durable Powers of Attorney
By naming a property and/or a health care power of attorney, you are appointing someone to make decisions and do business on your behalf if you are rendered incapacitated or become legally incompetent.
- Keep Documents Current
Once you put your estate plan in place, occasionally review and possibly amend it in response to changes in the estate tax law, changes in your marital status, substantial changes in your net worth, the birth or adoption of a child, or the death of a beneficiary. Let loved ones know where they can find your important documents.
The legacy you leave will depend on the estate plan you prepare. Through careful thought and use of proper tools, you can leave your beneficiaries with the estate you've always envisioned.
This publication is not intended as legal or tax advice; nonetheless, Treasury Regulations might require the following statements. This material is intended solely for the informational and educational purposes. It must not be used as a basis for legal or tax advice, and is not intended to be used and cannot be used to avoid any penalties that may be imposed on a taxpayer. Northwestern Mutual representatives do not give legal or tax advice. Taxpayers should seek advice based on their particular circumstances from an independent tax advisor. Tax and other planning developments after the original date of publication may affect these discussions.
—To comply with Circular 230.