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How to Improve Your Estate Plans

How to Improve Your Estate Plans

A lot of celebrities have died without a proper estate plan in place - everyone knows that. If you remember Prince and Aretha Franklin is a hot topic in the last few years, then you know about the unfortunate situation they were in. But freewheeling entertainers aren’t the only ones going through this. Even Abraham Lincoln who is a lawyer didn’t have one. Needless to say, our advice is that you must do your best to avoid this from happening to you too.

It’s best that you plan for a good end of life too and not just for a good life and a good retirement. To help refine your estate plan, protect your assets and create a level of control and certainty for your loved ones, let’s take a look at these tips we’re sharing with you.

  • Beneficiary Designations Must Be Reviewed

It’s sometimes not necessary for many accounts to go through the costly and time-consuming process of probate when they want to pass their estate to their heirs and loved ones. You can transfer life insurance contracts, 401(k)s and IRAs through beneficiary designations. This means you get to decide who is going to inherit your accounts after you die by filling out a beneficiary form. These forms are also helpful if you want to name successors or backup beneficiaries, or even split accounts by dollar amount of percentages between beneficiaries.

A good habit is to update and review every couple of years these forms and designations. This is especially important after going through major life events such as divorce, marriage, childbirth. Divorce might wipe out a beneficiary designation for an ex-spouse in some cases. Changing your designation or your ex-spouse could inherit it as it is required by accounts like 401(k) s. The same thing applies even if you remarry in some situations.

  • You Must Have Proper Life Insurance

Providing protection against the loss of income in the event of an individual’s untimely death is one of the primary uses of life insurance. It is extremely important when you’re working and supporting loved ones with your income.

The same thing can happen in retirement. If most of the retirement income through Social Security, stable work, a pension, an annuity, or another source of income, is made by one spouse, then keeping life insurance to provide for the surviving spouse or dependents after your death makes sense. 

Life insurance can also provide a means for passing on income tax-free to the next generation aside from the protection it gives against lost income when you die. If passing on a legacy is the main goal of retirement and estate planning, you may use life insurance as a different vehicle to reach your goal.

  • Avoid Probate with Trusts

Having the correct will and trust in place is part of effective estate planning. It’s not always true although almost everyone will need a will at some point. In some cases, if the individual has very limited resources, setting up a trust to shelter or control assets is not worth the cost. The value of trust as a part of the estate plan however also increases as the individual’s estate planning needs and assets increase.

The two main types of trusts are revocable and irrevocable. A revocable trust covers more issues for general estate planning needs. Consulting a financial advisor is a good idea if you want to learn more about this.

  • Include Charitable Giving

Giving to charities on an annual basis is part of achieving true wealth for most Americans. When you have the freedom to achieve your goals such as being able to leave a legacy to your church, alma mater, charity or other organization you care about, then you have what we call true wealth.

Since you’re going to need the assets to support your income during retirement, it can be more comfortable to donate money. However, once you die, there is no longer a certain need for money and can be passed onto a charitable goal.

You can do outright gifts to charities or set up a charitable remainder annuity trust (CRAT) providing income to a spouse or heir that survived with charitable giving as part of an estate plan. Did you know that you can also set up a CRAT at death by passing along your IRA? This can be an effective way to both generate income for a loved as well as give to charity in a manner that is tax-efficient.

As conclusion, keep in mind that your estate plan is unique to your situation. You must take the time to plan how you can have a good end of life and make sure you update your estate plan.

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