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  • wealth_management150x150

    By Denise Schoenherr, DBA, Full-Time Faculty Kaplan University 

    To provide for the financial needs of your family upon your death, you need to have a plan in place for the distribution of your assets. This is called estate planning. The objective of estate planning is to ensure the orderly transfer of as much of your estate as possible to heir and/or designated beneficiaries. It does not matter how small or large your estate, you will need to plan for the distribution of its assets. 

    Estate planning will ensure that your final wishes are carried out, distribute your assets, and minimize taxes for your heirs.

    Minor Children 

    If there are minor children it is especially important that you designate a guardian for them; someone who will raise them in the same manner as you would. If you pass and have not designated a guardian, the courts will appoint someone who could be an individual  that you would not particularly choose. You do not want your children to suffer more hardship than they will already experience upon your death.

    Avoid Probate 

    If an estate plan is not in place, all your assets will have to go into probate court. The courts would then decide who gets your assets and, depending on the size of the estate, the cost to your heirs could be quite large.  Probate costs can be anywhere between 2 and 5% of the estate value. Since this could take time, your heirs may have to use their money to cover the cost of closing your estate because of the delay in the settlement.

    Estate Taxes 

    The federal and state governments have their hands out for their portion of an estate. Without a proper estate plan and a will, the government could take a large portion of the assets you built over a lifetime. There are four major taxes that must be considered: estate taxes, estate and trust federal income taxes, inheritance taxes, and gift taxes.

    The federal government levies an estate tax that is assessed in the year of death; there is no federal inheritance tax. Some states levy death taxes, some states levy inheritance taxes, and a couple of states levy both death taxes and inheritance taxes. State inheritance taxes can be anywhere between 0–10%, depending on the state in which you live, and estate transfer taxes may also apply.

    The Seven Steps in the Estate Planning Process:

    • Will creation
    • Set up a trust to eliminate estate taxes for beneficiaries
    • Appoint a guardian for your minor dependents
    • Name an executor to oversee your estate
    • Make sure that beneficiaries of life insurance, IRAs, and 401(k)s are updated
    • Express your wishes for funeral arrangements
    • Set up powers of attorney (POA) for medical and financial decisions

    Denise Schoenherr is a faculty member at Kaplan University. The views expressed in this article are solely those of the author and do not represent the view of Kaplan University. Speak with a professional for any estate planning needs.  

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