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How to Implement Estate Planning to Strengthen your Financial Plan
Investment
Why is Estate Planning Important?
Estate planning is often thought as a financial strategy reserved for the wealthy, but this simply isn’t true. Accumulating and protecting your wealth is applicable for all ages and all levels of net worth because at the end of the day everyone should be preparing for the future when it comes to their finances. According to the American Bar Association, 55% of Americans will pass away without a will or estate plan. It would be a disservice to yourself and your family to leave such a crucial section, such as estate planning, out of your financial plan.
Financial planning goals can be retirement funding, college funding, and cash flow budgeting. You should keep up to date with your plan because unexpected events can impact your plan and you need to be able to adjust them in order to stay on the road to your goals. Also, it is important to protect these goals and cash flows in case you suddenly passing away. You want to be prepared. In order to protect your wealth in the future or for other generations, you will need to implement estate planning into your financial plan.
Estate planning is important because it will let you specify your wishes by letting you decide where you want to allocate your property and assets upon being deceased. After giving thought of your future wishesand the needs of the family, you would want to reach out to professional guidance and get estate planning advise from your, estate planner, law attorney, and/or tax professional.
Key Elements of Estate Planning
The key elements to an estate plan are a will, trust, life insurance, and gifts. Knowing how to properly use and title these documents can help you pass on your wealth to the next generation and can help you reduce your estate tax. Consider talking to your financial planner and setting up a trust that will allow you to gift your assets using the annual exclusion rate. This provides wealth to your kids and reduces the size of your estate which will make you pay less estate taxes.
Stay Up to Date
Data from U.S. Legal Wills shows that 71.6% of Americans do not have an up-to-date will. Just like needing to keep up to date with your financial plan, you need to do the same with your estate plan. Life changes like a divorce or remarriage can impact your estate documents and may alter your beneficiaries as well. If you have changed guardians for your children, or if there is a new baby in the family, you will need to talk to your advisor to see if changes need to be made to your documents. It is very important to have a plan with what happens to the assets if one of the spouses becomes incapacitated. There should be a destination for those assets and possibly a trustee watching over and managing it.
Consult with A Trusted Advisor
If you have not called your advisor yet you should do it now and just talk with them and get an update on your estate documents. Estate planning is an ongoing process and is important to set up properly so your hard-earned money can be distributed upon your wishes.
How to Prepare an Estate Plan
Now, you must know how to implement your estate planning strategiesto strengthen yourfinancial plan. Most people will disregard an estate plan when they have their own financial plan set in stone. However, creating an estate plan will greatly benefit your financial plan. Using a goals-based approach that will help you identify, implement, and achieve your dream will happen by using a successful plan. An estate plan that is implemented to your overall financial plan will positively impact your cash flows, and potential income tax benefits.
1. Create a trust
- Creating a trust through an estate plan can defer money from a business into the trust through strategic gifting, which would also reduce your overall estate tax liability. With a trust that is correlated to your financial plan, there can be many benefits such as incorporating a cash flow into a trust which will act as a savings to the younger generation. You can protect your assets by adding a general power of attorney, which will appoint someone to care for your finances, property, and any assets on the client’s behalf. This will be used because at some point in your life you will become incapacitated, and you will need someone to manage and distribute your finances the way you want them to be. Accordingly, this will strengthen your financial plan by saving your assets and property for you while distributing cash flow to wherever you wish it goes for the rest of your life.
2. Life Insurance
- Life insurance is another great option to implement into your financial plan. Having a term life insurance plan will guarantee coverageat a fixed rate benefit when the covered person passes away. You will have to pay a monthly premium, but your financial advisor will help you direct cash flow to pay for these monthly premiums. If you are interested in a more advanced strategy, you could sell your life insurance policy near death to get a lump sum of cash, which you can choose to do whatever with. Notably, you will need to have named beneficiaries on your life insurance term and this could be written to your family and children.
3. Gifting
- Gifting is another important part of your estate plan that can help strengthen your financial plan. Asa married couple, you can Gift Split which would allow you to gift $30,000 annually to any children or friends,which would effectively avoid a gift tax. This could be used to allocate money from a business and into a trust which would protect and provide your wealth to your named beneficiaries. So, talking to your advisor about these estate documents could really benefit your financial plan in the long run.
In Close
Financial planning and estate planning strategies are both important but in their own ways. Financial planning is the process of setting goals and organizing cash flows/investments. With that said, retirement is a main goal in financial planning and knowing how to set yourself up for retirement is crucial in a person’s life.
Estate planning is important to incorporate into your financial plan because when you are retired you will need to have named beneficiaries on your estate after you become deceased, so it all doesn’t go away. With understanding your financial life, you can add more value by including ideas on planning for the distribution of your estate. Your financial planner, tax advisor, and estate planning attorney will work together to create a comprehensive plan that will deliver you the best possible outcome.
