No matter your net worth, it's important to have a basic estate plan in place. Such a plan ensures that your family and financial goals are met after you die.
You may need a Trust.
Trusts aren't just for the wealthy. Trusts are legal mechanisms that let you put conditions on how and when your assets will be distributed upon your death. They also allow you to reduce your estate and gift taxes and to distribute assets to your heirs without the cost, delay and publicity of probate court, which administers wills. Some also offer greater protection of your assets from creditors and lawsuits.
Discussing your estate plans with your heirs may prevent disputes
Inheritance can be a loaded issue. By being clear about your intentions, you help dispel potential conflicts after you're gone.
The federal estate tax exemption -- the amount you may leave to heirs free of federal tax -- is now set permanently at $5 million indexed for inflation. In 2013, estates under $5.25 million are exempt from the tax. Amounts above that are taxed up to a top rate of 40%.
You may leave an unlimited amount of money to your spouse
tax-free, but this isn't always the best tactic.
By leaving all your assets to your spouse, you don't use your estate tax exemption and instead increase your surviving spouse's taxable estate. That means your children are likely to pay more in estate taxes if your spouse leaves them the money when he or she dies. Plus, it defers the tough decisions about the distribution of your assets until your spouse's death.
There are two easy ways to give gifts tax-free and reduce your
You may give up to $14,000 a year to an individual (or $28,000 if you're married and giving the gift with your spouse). You may also pay an unlimited amount of medical and education bills for someone if you pay the expenses directly to the institutions where they were incurred.
Few people relish estate planning. After all, deciding how you want your assets distributed after you die can serve as an unnerving reminder of your mortality. But there are plenty of reasons to tackle the task with some enthusiasm:
You get to name the people to whom you wish to give your assets and know that your wishes carry the word of law.
You can arrange it so that taxes siphon as little from your pot of gold as possible.
And you have the satisfaction of knowing that your financial affairs are in order and that you're not bequeathing a costly administrative nightmare to your loved ones.