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Estate Planning Tips to Keep Your Money in the Family

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Estate Planning Tips
Estate Planning Tips

We all dread the prospect of death, but it is something we must face at some point. Do you have a plan for what will happen to your money and assets when you die? If not, you’re not alone. Estate planning is one way to ease the burden on your loved ones when you’re gone. Estate planning is typically avoided because it may be difficult and unpleasant to consider. However, it is one of the essential steps you may take to safeguard your family’s financial investments and assets.

Many people wait too long to set up an estate plan, and it’s often too late by then. But doing nothing can lead to family disputes and even financial ruin. Fortunately, you can take steps to protect your loved ones and ensure your money goes where you want it to. Here are a few estate planning tips to get you started.

Make a Will

To keep your money in the family after you pass away, you must make a will. It is a legal document detailing how you want your assets to be distributed when you die. If you do not have a will when you die, the state will decide how to distribute your property, which may not be what you want. The best way to make a will is to work with an attorney specializing in estate planning. They can help you navigate the process and make sure your will is legally binding. You can also make your own will by using an online will service or a do it yourself wills and trusts kit. However, it’s essential to make sure your will is valid in your state and that you follow all the required steps.

Create a Trust

Another essential estate planning tool is trust. It is a legal entity that holds and manages assets on behalf of another person or persons. The ability to establish a trust during your lifetime can be useful for various reasons, including estate planning, tax reduction, and asset administration. Trusts can be revocable or irrevocable. Revocable trusts can be changed or terminated, while irrevocable trusts are permanent. Trusts are often created as part of a will, but they can also be created independently. Trusts are a legal concept that can be difficult to comprehend, so working with an attorney or financial expert to establish one is critical.

Beneficiary Designations

A beneficiary designation is a provision in some retirement accounts, such as 401(k)s and IRAs, and life insurance policies, which allows you to designate someone else to get your benefits in the event of your death. It’s essential to keep your beneficiary designations up to date, as they take precedence over what is written in your will. If you name your spouse as the recipient of a 401(k) and then divorce, your ex-spouse will still get the money unless you modify the beneficiary designation. You can name anyone as a beneficiary, including your children, other family members, or friends.

Power of Attorney

A power of attorney (POA) is a legal document that transfers power to someone else to make legal decisions on your behalf. A POA can be durable or nondurable. A durable power of attorney remains in effect, while nondurable power of attorney terminates if you become incapacitated. You can give someone power of attorney for a specific task, such as selling your house, or give them general power of attorney to handle all of your financial and legal affairs. Powers of attorney can be revoked anytime, as long as you’re still competent. By giving someone power of attorney, you can ensure that your money will be managed the way you want, even if you can’t do it yourself.

Keep your Documents Up to Date

It’s essential to regularly review your estate planning documents and update them as needed. It is especially true if you experience a significant life event, such as getting married, having a child, or buying a house. You should also update your documents if changes in the law could impact your estate plan. For example, the federal estate tax exemption is currently $12.06 million per person, but it is scheduled to revert to $5 million in 2026. If you have a large estate, you may need to act now to minimize taxes. When your documents are up to date, you can be confident that your family will benefit from your wishes, and your money can be easily distributed among them.

Establishing a Family Limited Partnership or a Foundation

Another way to keep your money in the family is to establish a Family Limited Partnership or a Foundation. It is a partnership between family members used to hold and manage family assets. The partnership agreement will specify the rights and responsibilities of each partner and how profits will be distributed. A Foundation is a non-profit organization created to hold and manage family assets. The Foundation’s board of directors will decide how the assets are used, and the Foundation can make grants to family members or other charities. These options can help you keep your money in the family while still providing some flexibility and control.

Consider Giving Money Away While you are Alive

One way to keep your money in the family is to give it away while still alive. You can do it through a process called gifting. You can give gifts of cash or property to family members, and there are some tax advantages to doing so. For example, you can give each of your children a gift of up to $16,000 per year without triggering a gift tax. You and your life partner can each give a gift of up to $16,000 per year. You can make larger gifts, up to $12.06 million per person, without triggering a gift tax. However, if you give away more than this amount, you will be subject to a 40% gift tax. Gifts made during your lifetime will not be subject to estate taxes when you die. Gifting can be a great way to keep your money in the family and reduce your estate tax liability.

Conclusion

There are many ways to keep your money in the family. Estate planning is an essential tool that can help you ensure your money is distributed the way you want. There are various factors to consider when it comes to estate planning. However, if you follow these suggestions, you can keep your money in the family and ensure that your dear ones are well cared for after you pass away. Have you started Estate Planning? What else would you suggest to add in this list?

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