Estate planning is the process of planning how to manage and handle an individual’s estate after his/her death. All the assets owned by an individual becomes estate after his/her death. The decedent’s beneficiaries and heirs receive those assets.
Estate planning includes making of a will or a trust or a charitable donation. The estate of the decedent gets distributed according to the instructions mentioned in the will or the trust.
In case of a will, the decedent must have mentioned the name of the executor. The executor has the responsibility to to execute the will through a probate process. He/she has the authority to manage and handle all the will-related activities. The executor is the one responsible for distributing the estate of the decedent.
While doing the estate planning an individual should also keep in mind the burden of estate taxes that his/her heirs may face. To avoid this an individual can make trust or make charitable donations.
In order to have a proper estate plan an individual should have proper knowledge on the following aspects of estate planning:
1. Will in Estate Planning
A will is a legal document that informs about the intends of an individual regarding his/her owned assets after he/she dies. A will is an instrument that instructs on how to manage and handle a decedent’s estate.
The testator mentions the name of the executor in his/her will. The executor is the person responsible for administering the testator’s assets after his/her death. The testator should name such a person as the executor who will be able to execute the required tasks efficiently.
The will is administered through a process called probate. The court executes the probate process with the executor’s help. The court verifies the authenticity of the will before proceeding with the process.
2. A Skillful Executor in Estate planning
The job of an executor is not easy so it is always suggested to select executors who are efficient and intellectual. An inefficient executor should hire a probate attorney for executing the probate process.
The executor has to list out all the assets owned by the decedent and evaluate those based upon the current pricing. The evaluation will determine the actual estate value.
After evaluation, these funds are useful to clear the debts of the decedent and pay out the pending taxes. After clearing out all the dues, the remaining funds are finally distributed among the heirs and beneficiaries.
Thus, creditors who have pending dues must share that information with the executor within a limited time. Then only they can hope for a repayment of their dues.
3. Estate Planning for Taxes
Taxes can reduce the value of the assets left by the decedent for his/her heirs and beneficiaries. Therefore the estate planner should find out different ways to avoid tax. Some of the tax-avoiding ways are:
- Trusts: An individual can make trusts to avoid tax. A trust will divide the assets of the decedent among the person’s named in the trust.
- Education Funding Strategies: Transfering funds to different accounts for the children’s future education while the estate planner is alive is the best way to avoid tax. If the transferring of the funds meant for children’s education happens after the testator’s death, then the funds can expose to many taxes. These taxes can reduce the amount available for children.
- Charitable contributions: The estate planner can also make charitable contributions when he/she is alive to reduce the estate value. This can save the estate value from taxes.
4. Life Insurance Role in Estate Planning
Life insurance can turn out to be of great help in estate planning. By properly structuring the life insurance of the decedent, one can use the proceedings it from to meet the pending taxes.
The proceedings from the life insurance doesn’t attract any taxes. This proceedings helps to pay the final taxes of the decedent. In this case, the estate fund available for the heirs and beneficiaries can amount more.
Thus, estate planners must have life insurance to protect his/her assets from being used to pay debts after his/her death.
Hence, a proper estate planning can guarantee or ensure a burden less transfer of estates to the heirs. The heirs will not face any trouble after the decedent’s death. This is how an estate planner can secure his/her family’s life even after he/she dies. A structured estate planning is what every family needs.