Estate planning checklist
A major part of estate planning has to do with taxes. Estate tax is a tax imposed on an individual's estate after their passing, before it is distributed to heirs and beneficiaries. With the assistance of an estate attorney and/or tax professional, a thoughtfully designed estate plan can effectively manage and reduce estate taxes, gift taxes, and other tax implications.
Step 1: Make an Inventory of Your Assets
By creating a comprehensive inventory, you can clearly understand your tangible and intangible assets.
Tangible assets typically include:
- · Real estate properties, such as homes and land
- · Vehicles, including cars, motorcycles, and boats
- · Collectibles like coins, art, antiques, or trading cards
- · Other personal belongings of value
Intangible assets encompass:
- · Savings and checking accounts
- · Stocks, bonds, and mutual funds
- · Life insurance policies
- · Retirement plans include 401(k) accounts and individual retirement accounts (IRAs)
- · Health savings accounts
- · Ownership in a business
Step 2: Address Your Family's Needs
Once you, as estate planner, have a clear picture of your assets, it's vital to consider safeguarding your them and your family's well-being after your passing.
- · Draft a Trust
Unlike a will, a trust is a separate legal entity a person sets up to hold their assets. A revocable living trust is a trust in which the terms can be changed at any time and doesn't require probate. A testamentary trust is a trust created by the grantor's will, while a living trust (sometimes called an inter-vivos trust) is one created by the grantor during his or her lifetime. Check with your advisor to find out which is best for you.
- · Ensure you have adequate life insurance coverage. The amount of coverage needed depends on factors like marital status and your family's financial needs, particularly if you have dependent children.
- Appoint a guardian for your children and consider designating a backup guardian.
Step 3: Establish Your Directives in Your Estate Plan
A comprehensive estate plan checklist should include essential legal directives to uphold your wishes. Here are some crucial directives to consider:
- · Revocable Living Trust: With this kind of trust, you can transfer your assets into it and designate a trustee to manage them for your benefit and that of your beneficiaries.
- · Medical Care Directive (Living Will): A living will includes your medical care preferences if you cannot decide for yourself. You can also assign a medical power of attorney to a trusted person.
- · Durable Financial Power of Attorney: This directive enables a loved one or professional to manage your financial affairs if you are medically incapable. This person can act on your behalf in both financial and legal matters.
- Limited Power of Attorney: If you're concerned about giving complete control to someone else, a limited power of attorney restricts the powers of your named representative.
Step 4: Review Your Beneficiaries
Ensure your estate plan is comprehensive by reviewing your beneficiaries on various accounts and policies. Take the following steps:
- · Check Retirement and Insurance Accounts
- · Verify Designated Beneficiaries
- · Name Contingent Beneficiaries
Step 5: Get Familiar with California’s Estate Tax Laws
At the federal level, estate tax applies only to larger estates, regardless of the state of residence. However, estate tax laws vary among states, resulting in differing approaches to taxation.
California is among the 38 states that do not impose estate tax. However, it's important to note that this does not automatically guarantee a tax-free inheritance. Regardless of the estate's size, the Franchise Tax Board does not impose any estate taxes on inheritances. It's crucial to emphasize that this applies only at the state level, as the Federal Government has its own set of estate tax rules.
Step 6: Prepare to Reassess Your Estate Plan
Whenever your circumstances undergo significant shifts, such as marriage, divorce, the arrival of a new child, the passing of a loved one, or changes in employment status, it's essential to revisit your estate plan and make necessary adjustments. Even without significant life events, periodic estate plan reviews are crucial. Laws and regulations may have changed, so ensuring your plan remains up-to-date is vital.
I recommend all Santa Barbara homeowners (especially if acting as their own estate planner) work on creating their Estate Tax Check List with an estate attorney and/or tax professional. They can help maneuver the sometimes-complicated implications and leave you with a sense of relief that you’ve taken care of the issues long before you’re gone.
Of course, if you’re in the market for property to enhance your estate and think a new one might be in Santa Barbara, Montecito or the surrounding communities, call me at (805) 886-9378 or email me at Cristal@montecito-estate.com. I’ll happily show you what’s on the market right now, as well as share my pocket listings.