Basics of Estate Planning

The term estate planning can be misleading. Many people may not feel as though they have enough property to warrant it being referred to as an estate or that the value of their property is too little to be eligible for estate taxes. However, it is really never too soon to create an estate plan.

Estate Planning 101

If there is anything of value that you own and would pass on to a loved one after death, then there is an estate present. If you die without a will, the state has a probate court around for the purpose of dividing these assets. A probate court will follow state laws on how to distribute property and use this to determine what an individual receives in the event of a death. Many prefer to divide their property in a specific way, ensuring that assets are distributed to specific individuals differently than how the state would do so.

Creating an estate plan may seem intimidating, but all estate planning revolves around three basics:

• Wills: These state what will happen to property after death. A will can only be enforced after a person's death and can be changed at any time. It will determine an executor of the estate who is responsible for distributing personal property. A will can also designate caretakers for children, distribute property to who a person chooses, and will minimize estate taxes.
• Trusts: These are different than wills because it involves one individual, called the trustee, who manages all of the assets in the trust for the trustees. Trusts do not necessarily need to involve the death of the benefactor to become valid and can also be amended during that person's lifetime. Trusts are able to distribute assets more quickly and can place stipulations on how property can be used.
• Estate tax: These are taxes placed on estates valued at $5.25 million or more. This does not just include physical property, but also includes life insurance, pensions, and retirement funds.

The combination of these three aspects of estate planning can make a huge impact on how protected loved ones are in the event of a person's death. Understanding how each works can ensure that assets and properly are divided in exactly the way that the individual wants them to be distributed.