In the next 20 years, an astounding $84 trillion in assets is set to change hands as older Americans leave their wealth behind to loved ones. But it’s a big misconception that estate planning is something that only rich people have to do.
Even if you’re a person of modest means, it’s important to put some thought into estate planning so you’re able to pass down assets in the most efficient way possible. Here are some things to know about estate planning.
Use the right tools to pass down assets
It’s common for people to use a will to pass down an inheritance. That might seem like the easiest and most cost-effective avenue, but there are a couple of pitfalls you might encounter.
Wills have to go through a court process called probate, and it can be both lengthy and stressful. It’s not uncommon for probate to take longer than a year. And the more complex the estate, the longer it might take. This means that after you pass, your loved ones could be stuck waiting many months to get the money you’ve left them.
Probate can also be expensive. There are court fees that will need to be paid out of your estate, which will only reduce your loved ones’ inheritance.
Plus, when wills go through probate, they become a matter of public record. That means your loved ones’ privacy disappears.
So instead of a will, you may want to consider using a living trust to pass down an inheritance. A trust won’t have to go through probate, so you can spare your loved ones that process and protect their privacy at the same time.
Now you should know that it commonly takes more money to set up a trust than to write a will. But any “savings” you get out of a will could be negated by a costly probate process.
Protect yourself from the unexpected
Estate planning isn’t just about inheritances. It’s also about taking care of yourself. To that end, it could also be a good idea to set up a power of attorney in case you end up needing a loved one to make decisions on your behalf. That’s something you’d want in addition to a will or a trust. That person could be a child or even a trusted friend.
Get everything out in the open
No matter what tools you use to pass along an inheritance, it’s important to have open conversations with your loved ones about your intentions. This could help avoid a scenario where your family members start battling each other over money you’ve left behind.
Also, if you don’t get everyone on the same page ahead of time and you do use a will, you risk having it contested in court. That could prolong the probate process and cost everyone involved more money — not to mention delay the distribution of your assets even more.
Talk to a professional for help
Estate planning can be a complex thing, so it’s a good idea to get help along the way. It pays to talk to an estate planning attorney who can walk you through your options and help you decide exactly what legal arrangements to put in place.
You may also want to consult a financial advisor for tips on how to maximize your assets for a more robust inheritance. In fact, an estate planning attorney and financial advisor can work together to offer the guidance you need so you’re covering all bases.
But don’t write off getting help just because you aren’t loaded. Even if you have an average-sized estate, it’s important to know what options you have and understand the pros and cons of each.
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