Any good investor should know that estate management should be a big part of their activity. Estate is a term used to refer to all of the property you own, whether that’s your home, car or another real estate, to personal property and the money you have in your bank accounts.
For most people, the words ‘estate planning’ mean drawing up a will for loved ones in the event of a death. Although creating a will is an essential part of the estate planning process, estate planning can also include a variety of other tasks and decisions for managing and transferring assets during a person’s lifetime and after death. This process can ensure that your wishes are carried out and that your assets can be transferred to your loved ones in a tax-efficient manner.
Estate planning involves three important types of documents:
- A will is one of three key documents used in estate planning. It provides legal guidance as to how your estate will be distributed after your death. As mentioned above, your estate refers to your property and possessions. If you don’t get these documents in order before your death, your estate will be handled according to local laws. This could mean losing the right to choose who will receive what and may result in additional costs in administering the estate as well as lengthier timeframes.
- The second document used in estate planning is a Power of Attorney (POA). A Power of Attorney is a legal document used to authorize another party to act on the behalf of an individual during their lifetime. It can be used to provide assurance that there is someone to manage your personal and financial affairs should you become unable to do so, for instance, due to accident or illness.
- Lastly, estate planning typically begins with building an inventory of your assets and any outstanding debts owed. The inventory usually contains other important details such as the location of your will and POA documents, as well as the terms of any insurance policies and your passwords, etc.
Estate planning involves discussing important questions, such as who will be named executor in administering your estate and who will act as power of attorney with regards to the property or personal care should you become unable to do so. It will also include naming your beneficiaries and how you wish to support them and identifying any charities you wish to donate to. Estate planning helps ensure you are transferring your valuable assets in a tax-efficient manner and determines which assets will be included in your estate.
Ways of transferring assets:
There are four main options for transferring wealth, the first being through your will. You also have the option of gifting assets, but unlike a will, this must occur before death, as well as the use of inter-vivos (living) trusts. It is also possible to create jointly owned accounts or add named beneficiaries to existing accounts and transfer your assets this way.
Insurance is the final element to consider when planning your estate. Insurance can be a way of providing a tax-free lump sum in the event of a death. This can provide liquidity to pay outstanding taxes and debts. It can provide real peace of mind, providing funds when they are needed most.
Being responsible with your assets can go a long way, so make sure you are organized. Estate planning can help you keep track of everything you own and help you better manage this aspect of your life.
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