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Understanding Estate Planning: Address "the Elephant in the Room"

| May 12, 2016
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Understanding Estate Planning: Address Have you established an estate plan? Are your estate planning documents accomplishing your estate planning goals? Did you know that even if you have not yet established your estate documents, you already have an estate plan?

Addressing what for so many people is “the elephant in the room” is challenging for most of us. But if you own assets — regardless of how much you have — you have an estate!

Upon an individual’s death, those assets, by law, must be properly distributed. Without proper planning, a court could determine their distribution in accordance with state law. And how the court distributes those assets may not be in accord with the wishes of the deceased.

In this article, I address why many of us postpone creating an estate plan — and why that’s not a good course of action.

I have highlighted some basic components of estate planning in a previous article and how a financial adviser, in conjunction with an estate planning attorney, can help design an estate plan that will complement your financial goals.

Estate planning has changed over the years due to changes in laws, views of finance, lifestyle, privacy issues, nontraditional families, and longevity. These changes have made creating an estate plan more compelling for a greater number of people.

Estate planning encompasses the following categories:

    •    financial issues

    •    retirement

    •    business succession

    •    charitable giving

    •    medical needs

    •    disability

    •    legacy

    •    gift planning

Toss out the idea that creating an estate plan is intimidating. I propose that it is instead an exciting opportunity to get your financial house in good working order.

Let’s break down the process to make it easier to face the elephant, bit by bit.

1. Accept the emotional piece. The reasons many people do not create an estate plan range from believing they do not have sufficient assets, to not wanting to address their mortality. Others don’t want to dredge up family conflicts. Fair enough. People’s lives and legacies are complicated, and it can be emotionally exhausting to get everything just right. But postponing the process of establishing an estate plan doesn’t solve any of these issues.

2. Know why creating an estate plan is essential. For many, building an estate takes a lifetime of effort and planning. Along with financial gains comes a set of objectives related to the distribution and possible taxation of your assets. Significant planning and implementation is likely to be vital to accomplish your long-term goals. And failure to make provisions during your lifetime for the distribution of your estate may result in unnecessary taxation and settlement costs — which can be avoided with proper planning. Therefore, a carefully developed estate plan may help you achieve lifelong financial goals that provide for your loved ones, the charitable organizations you care about, and others whom you may wish to receive a financial gift upon your death.

3. Educate yourself, and get started. The first step in creating an estate plan is to take a “snapshot” of your current financial assets. This gives you a picture of your current estate and will provides a benchmark against which future progress can be measured. It can also identify potential issues you may need to address in your estate plan. Take the snapshot by listing the value of all of the assets you own and all the debts you owe. The difference between those will give you an idea of your net worth. Do not overlook your insurance policies!

4. Explore your long-term financial goals. Once you have an idea of your current estate:

    •    Consider how you want to distribute your assets in the long-term.

    •    Keep in mind that your assets will most likely grow in value.

    •    Set up a meeting with your trusted financial adviser to help you map a route to reach your financial goals, and to be sure your planning reflects your wishes.

The bottom line: Educating yourself is the key to taking control of your finances. Understanding the basic components of estate planning will assist you in reaching your current and future goals.

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