Estate planning is a crucial aspect of wealth management that often gets overlooked or postponed. Many people mistakenly assume that estate planning is only for the wealthy or the elderly. However, in reality, estate planning is essential for everyone, regardless of income level or age.
Estate planning involves determining how assets will be managed, protected, and distributed during and after one’s passing. While it may not be a topic that many people want to dwell on, taking the time to have an effective estate plan in place can provide peace of mind and protect loved ones from additional stress during a difficult time. This article will provide a guide through the essential steps of estate planning.
Before diving into the specifics, it is important to understand what estate planning entails. Estate planning refers to the process of arranging for the management and disposal of an individual’s estate during their lifetime and after death.
It involves deciding on the distribution of assets and properties, minimising tax liabilities, appointing guardians for minor children, and much more. Estate planning can be used as a tool to maintain control over assets, protect the family, and minimize disputes among loved ones.
The first step in estate planning is to create a comprehensive inventory of all assets and liabilities. Compile a comprehensive list of all assets, including but not limited to:
Real estate properties: List all the properties owned, including primary residence, vacation homes, rental properties, or land. Financial accounts: Include bank accounts, retirement savings, investment portfolios, stocks, bonds, and any other securities owned.
Physical possessions: This includes automobiles, jewelry, artwork, antiques, collectibles, etc.Intellectual property: This includes copyrights, patents, or trademarks, make sure to list them as well.
Digital assets: Don’t forget online accounts, domain names, cryptocurrency, and any other digital assets possessed. Life insurance policies: This includes information on life insurance policies, such as the insurer’s name, policy number, and beneficiaries.
Debts/loans: Creating a detailed inventory of assets owned will help gain a clear understanding of what is possessed and what needs protection. It will also make the estate planning process smoother.
Once there is a comprehensive list of all assets, it’s time to determine the goals and objectives for estate planning. Consider the following factors:
Asset distribution: How are assets to be distributed among family members, friends, or charitable organisations? Should there be provisions for specific individuals or create equal distribution?
Guardianship for minors: If there are minor children, who would be appointed as their legal guardian? Ensure that this decision is discussed with the potential person(s) before making it official.
Healthcare and financial decisions: Who can be entrusted to make healthcare decisions in case of incapacitated? Also, consider whom to entrust with financial decision-making power.
Supporting charitable organisations or causes one is passionate about. Determining the goals and objectives will help shape the estate planning strategy and ensure that specific wishes are accurately represented and executed.
The next step is to choose a trusted and experienced executor. Selecting an experienced executor is crucial, as this person or organisation will be responsible for managing the estate and ensuring specified wishes are carried out.
It is essential to choose a professional capable of handling the responsibilities that come with this role. The executor would be responsible for the creation of a will or living trust depending on the specific needs.
A will is a legal document that outlines how assets are to be distributed after death. It allows the testator to select specific beneficiaries and provide instructions regarding the distribution of his/her estate. It is worthy to however note that a Will is subject to probate process and estate tax.
Alternatively, a living trust can also be established to hold assets during the lifetime of the settlor and provide instructions for asset distribution after the settlors passing.
Living trusts can provide added benefits such as privacy and the avoidance of probate. It is important to work with a Trustee or Wealth Advisor to understand the different types of trusts and determine which one best suit the settlors needs.
It is important to regularly review and update the estate plan as life circumstances and laws change over time. Major life events such as marriage, divorce, birth, or death should trigger a review of the plan to ensure it remains relevant and reflects one’s current wishes. Regularly updating the estate plan helps to ensure that it reflects the most current intentions of the settlor and avoids potential complications in the future.
Furthermore, one may consider effectively communicating desires to loved ones, a fundamental and frequently disregarded component of estate planning.
Having open and transparent discussions about the estate plan can help avoid misunderstandings and conflicts after one’s passing. It also provides an opportunity for loved ones to ask questions and gain a better understanding of the rational for certain decisions.
Also, if there is a desire to give back to the community or support causes that is deemed important, consider including Philanthropy in the estate plan.
Consulting with a wealth advisor can help identify the most effective ways to incorporate philanthropy into the estate plan. Lastly, Estate planning can be complex, so it is wise to seek guidance from professionals who specialise in this area.
An experienced Legacy/wealth advisor can help navigate the legal and financial intricacies, ensuring that the estate plan is comprehensive and tailored to specific needs. They can also provide valuable insights into tax-efficient strategies and potential pitfalls to avoid.
Navigating estate planning may seem like a daunting task, but it is a crucial step towards protecting family assets and securing the financial future. Taking the time to navigate through the steps involved in estate planning is an investment in safeguarding assets and creating a legacy that will benefit future generations.
By following these essential steps, one can ensure wishes are honored and loved ones are protected.
Aisha is a Wealth Advisor at the Meristem Family Office.
