Did you know that 60% of adults in the United States lack a will or any sort of estate planning? No one likes to think about dying. But, without estate planning, it's easy for your money to end up in the hands of outside parties. This means that your family is effectively cut out from any money that you would've wanted them to have.So, how can you prevent this? Simple: by reading this article! In it, we'll teach you everything you need to know about how to keep your money in the family. We'll also give you some helpful estate planning tips to cover any potential blind spots you might have missed. Let's get started!
How to Keep Your Money in the Family
If you want to keep your money in the family, then the first place to start is drafting a will. A will is a document that designates how your assets will be distributed after you die. It also names an executor who will carry the distribution of your assets. It's generally recommended that you have a will if you're married or have children or pets.If you don't have a will, then your estate will be sent to probate court. Here it will be divided up according to state law. If you don't appoint a legal guardian, then the court will also decide who looks after any children you might have.This option is bad because it leaves the decision to people who have no idea about your family circumstances. Not only that, but it's also incredibly expensive. Probate court costs can eat into 3 to 7% of your estate value. So, not only will the distribution be potentially unfair, it decreases the final amount as well.
Four Other Estate Planning Tips
While a will might be the most obvious way of keeping money in the family, it isn't the only thing you can do. It's helpful to think about a will as a first step when it comes to estate planning. You can take other precautions to ensure that the people you care about get the funds they deserve. Let's take a look at some of them.
1. Update Your Beneficiaries
A will won't distribute all of your assets. Some, like life insurance policies and retirement plans, are distributed by naming beneficiaries. In the event of death, the funds from these accounts will go directly to any beneficiaries named. Without a beneficiary named, the issue gets resolved in probate court.Unfortunately, a lot of times, outdated beneficiary designations can create quite a headache for living heirs. For example, many people forget to update their beneficiaries when life changes occur. These changes can include things like marriage, divorce, remarriage, and having kids. Remember that beneficiary designations in these accounts supersede your will. So, it's important to keep them up-to-date whenever you get a chance.
2. Set Up a Trust
If you're worried about an heir spending all of their money at once, then consider setting up a trust. Trusts involve putting a third-party trustee in charge of distributing the assets to the beneficiary. There two types of popular trusts: irrevocable and revocable. Assets that are placed in an irrevocable trust no longer belong to you. Instead, the trust itself owns the assets. On the other hand, revocable trusts allow you to control the assets and dissolve the trust at any time. So why would you want to make an irrevocable trust?Because irrevocable trusts provide a variety of tax benefits and creditor protection. Notably, the IRS offers many exemptions, which may allow your family to retain assets in a trust for generations so they're never subject to estate tax. As such, they're ideal for people with, particularly large estates.
3. Turn Retirement Accounts Into Roth Accounts
Retirement accounts like a 401k and IRA allow you to put aside the funds you need for retirement. These funds aren't taxable until you choose to collect them. Unfortunately, if you die and leave these accounts to your heirs, then it can unintentionally make their lives harder. When your heirs inherit these accounts, they also take on any income tax liability that comes with it.So how can you avoid this? By gradually changing these accounts into Roth accounts. Roth accounts work in a lot of the same way as retirement accounts. However, the difference is that with a Roth account, you pay any taxes on your funds now.That means that in the event of your death, your heirs aren't left with a huge tax bill. However, this process might push you into a higher tax bracket as you convert your retirement accounts. As such, you should discuss it with your accountant and estate planning attorney first.
4. Hire a Professional
As you can see, estate planning can get complicated very quickly. That's why it helps to have professionals like an estate planning attorney or financial advisor on your side.These individuals can give you advice on the best way to distribute your assets. They can also help you draft any of the documents you want to put into place. It's especially recommended that you hire a professional if you have a complex portfolio.
Need Help With Estate Planning in Northern Kentucky? Contact Eric S. Beutel
We hope this article helped you find out how to keep your money in the family. Unfortunately, estate planning tips can only get you so far. The key to a secure future is an estate planning attorney you can trust. Unfortunately, finding a reputable one can be easier said than done. So how do you locate the right one for you?If you live in Northern Kentucky, then look no further than Eric S. Beutel. Eric knows how a personal loss can quickly turn into a tragedy if the proper documents aren't in place.That's why he works to help families with any legal advice and services related to elder law and estate planning. If you're ready to schedule your free and confidential consultation to protect your family, then get in touch with Eric today.