You’ve likely spent much of your adult life working hard, building a career and growing your assets and your legacy. Now it’s time to plan how that legacy will be passed on to your loved ones after your death.
Thinking about your own death may not be a pleasant experience, but that doesn’t make it any less important. In fact, if you fail to plan for the transfer of your legacy, your heirs could end up with only a fraction of your total assets. That’s because there are a number of expenses and costs that can pop up during the asset-transfer process.
Below are three common expenses that can arise during estate distribution. Fortunately, you can plan for all of these costs and minimize your impact. If you haven’t considered how these expenses could affect your legacy, now may be the time to do so.
1. Probate costs
You estate may have to go through a process called probate, which is the legal process of settling an estate. During probate, the executor of your will works with the local court to clear all outstanding obligations and distribute assets to your heirs.
Probate can be a busy time for your executor and your other heirs. You executor will have to file a final tax return for your estate. He or she may need to pay off a number of outstanding debts. Your heirs may need to liquidate assets, such as cars, real estate, furniture and more. And the executor will have to track down all heirs and notify them of your passing.
As you might imagine, all of those steps can generate expenses. An accountant may be needed to handle tax issues. An appraiser or auctioneer may be required for asset liquidation. There will also be numerous court fees. All of the activities done in probate usually have a cost associated with them, and most of those costs are paid from your estate, thereby reducing your heirs’ inheritance.
Fortunately, you can take steps to minimize the impact of probate. You can use accounts with beneficiary designations, such as trusts, life insurance, annuities and IRAs. You can also establish a joint owner on your assets so the asset will pass directly onto that person, without going through probate.
They say death and taxes are the only certainty in life. In many cases, the two go hand in hand. There could be a number of ways taxes could impact your estate.
The first is through your final tax return. Your heirs will have to file one last tax return on your behalf. If you have any kind of outstanding obligation, it will likely have to be paid out of your estate.
The second way taxes may impact your estate is through the estate tax. In 2016, you can have an estate worth up to $5.45 million without facing any estate tax. Once your estate passes that threshold, estate taxes may apply. Again, those taxes are often paid out of the estate’s assets.
One way to offset the impact of taxes is to utilize life insurance. Life insurance can create a pool of liquidity your heirs you can use to pay off taxes, debt or any other major obligations.
3. Legal costs
Ideally, your heirs would accept your wishes and let the estate settle without any kind of dispute, but that doesn’t always happen. That’s especially true if you haven’t clearly communicated your wishes to your loved ones.
Legal disputes over wills and inheritances can be lengthy and costly for everyone involved. There are rarely any winners in that kind of conflict.
You can avoid costly legal disputes after your death be being proactive and overly communicative with your loved ones. Discuss your plans with them. If there’s anyone who may feel slighted, discuss the issue with them and explain the reasoning behind your decision. If they know what’s coming, they may be less likely to take the issue to court after you pass away.
Are you starting to plan your estate? A knowledgeable and experienced professional can help you understand all the potential challenges and expenses. Contact us at Coventry Financial Group to start the conversation. We look forward to help you plan your legacy.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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