Estate Planning is an important part of financial planning. It is necessary to have an estate plan in place so that your wealth is transferred to intended beneficiaries without hassles. It is not a simple process and therefore enlisting the help of a financial planner or a professional will help you in getting it right.
Estate means the networth of a person. Estate planning refers to making arrangements such that your wealth is taken care of and distributed to beneficiaries, as you desire after your death without too many legal hassles. It is an important aspect of personal finance and financial planning, irrespective of how big or small your networth is in your opinion. It is better to take professional assistance for estate planning, as it is a tough task. Here are some guidelines on estate planning –
Creating a will – It is important to draft a will. The will should state the wealth that you have and how it should be divided between your beneficiaries. It should also contain information about how donations should be taken care of. It can be either handwritten, in a computer file or there are even online services that can draft your will. It is important to name a person who will execute the will when you are not there. You should sign the will in the presence of witnesses. For more information on creating a will, you can read our article by clicking here.
Setting up a Trust - The other way to secure the transfer of one’s networth as desired is to set up a trust. This is normally done when the intended beneficiaries of the estate are not ready to take up the responsibility. The trust will take care of the estate and when the beneficiaries are ready to take up the estate, it will be handed over to them.
Division of assets and liabilities among heirs – Estate Planning involves listing down legal heirs who may not necessarily be relatives and detailing out who gets which part of the estate. Documentation of this aspect is important so that there is no confusion on who gets what.
Nominating a guardian for dependents - If you have any dependents, the estate plan should state how they should be taken care of in your absence. The plan should highlight who should be responsible for the dependents. For example, if you are taking care of disabled relatives, you should detail out how they should be taken care of when you are not there.
Financial Planning – As you know, financial planning is an ongoing exercise, it is important to have a broad outline of steps in place so that the ones taking care of your finances and do what is required to reach the financial goals set.
Review your estate plan – It is important to review/update the plan once in a while. Some reasons which could mean an update to the estate plan –
- Value of networth changes
- Your relationships changes like you have a child or you remarry
- Laws related to estate planning change.
It is important to have an estate plan in place. Otherwise the estate would be given to legal heirs, as per the existing laws of the state, and not in the manner you had in mind. It has to be in place so that there are no complications on how your wealth should be distributed after your death.