Everyone wants financial security in retirement. The good news is that there are ways you can help secure it! For example, you can make sure you have a well-diversified portfolio and proper insurance in place to cover worst-case scenarios. However, many people forget about estate planning, which is also critical. In this article, we’ll go over the essentials of estate planning for your financial security. Read to the end of the article to uncover one aspect of estate planning many people get wrong, which can cost you big!
Establish Your Will & Power of Attorney
One of the most essential parts of estate planning is having your documents and preferences laid out. You need to have a will, powers of attorney, and HIPAA documents. These three areas are absolutely crucial. Many people don’t understand that if your spouse has a 401K or IRA and they get incapacitated or pass, you may not be able to manage those accounts without power of attorney. Wills and powers of attorney are generally done when you’re younger to protect children, and they are often forgotten afterwards. However, it is essential that you update these documents, since your situation has changed in those years. In short, make sure that your documents are in place and updated, so that your wishes and your loved ones are protected.
Establish a Trust
As your wealth grows, another essential part of estate planning may be establishing a trust. The one we see most commonly is a living revocable trust. This trust is tied to you or you & your spouse’s social security number. It is a living trust, so it doesn’t require an annual tax return, and it typically serves as the beneficiary for your assets. For example, if you’re married, you and your spouse will be primary beneficiaries of each other’s trusts. When one or both of you passes, your trust becomes the beneficiary, not your children or grandchildren. The trust gives you control of your money even after you’ve passed, allowing you to determine how your assets are distributed after your death.
It can also give you privacy. Privacy is especially important for affluent clients. In most cases, assets left in a trust can go around probate and avoid getting stuck in the courts, so your assets pass more easily to your heirs. There are many trust options out there, such as revocable and irrevocable trusts. If this is of interest to you, consult an expert or reach out to us at REAP Financial. We can connect you with one of our seasoned advisers.
A few final notes on trusts. First, you should fund the trust, by changing the beneficiaries of your accounts and other assets to the trust. Many people draw up trust documents and forget to complete this final step, undermining all of their hard work. Second, you cannot leave money to minor children or grandchildren, since they won’t be able to inherit it. If you have minor beneficiaries, trusts are often a good way to make sure your assets get to where you want them.
Define Your Beneficiaries
A big part of estate planning is deciding who you want your beneficiaries to be. With your spouse, consider who you’re leaving money to, why, and for what purposes? Do they share your values in terms of saving and spending? At REAP Financial, we encourage families to give to their future beneficiaries throughout the year. This has the dual benefits of allowing you to see the impact of your gift, but also see how they manage that money. Those insights can impact your decisions on who you’re leaving money to and how much you leave them.
You may also consider giving to causes you believe in. If you give money charitably or plan to leave money charitably, you need to specify what money you’re going to leave in your will and trust. For example, if you plan to give charity, you may designate your 401K or IRA to a qualified charity instead of a loved one, since a qualified charity can receive those funds tax free. This is just one example, but it goes to show there are strategies that need to be written in around what dollars you’ll give to charity.
Be Proactive & Communicative
Many of us avoid these conversations, since it can be uncomfortable to talk about death. Or perhaps, we intend to do it later and never get around to it. When you’re setting up your documents, you should also take care of your parents, if they’re still alive. If you are an inheritor or trustee, it can be a lot of work. You should be prepared to execute these affairs and plans. The more open communication you have around these topics, the easier it will be for everyone going forward.
If these tips resonate with you, you may want to set aside some time to review and update your estate plan. At REAP Financial, we can run an analysis on your current estate plan, so we can identify any gaps or opportunity areas. You’ll also want to list important life changes that would make it necessary to adjust these plans again, such as new grandchildren, divorce, or similar. Finally, keep in mind that legislative changes can impact your estate plans as well. So, even if you don’t have major personal changes, we recommend you do an estate review once every five years, so you have total confidence everything is optimized. If you’re interested in more tips on legacy planning, we suggest watching this video next!
Partner with REAP Financial for Estate & Retirement Planning in Austin, Texas
If you’re in Austin or the surrounding areas and looking for financial guidance, REAP Financial is here to help. As a fee-based financial planner, we specialize in serving high-net-worth individuals and families, focusing on wealth preservation, estate planning, and retirement strategies tailored to your unique goals. With personalized advice from fiduciary advisors, we help you work toward securing your financial future, whether you’re planning for retirement or structuring your estate.
To learn more about how REAP Financial can assist with your estate planning and financial security, contact us for a free consultation today. Our experienced team is dedicated to helping you achieve peace of mind and ensuring your legacy is protected.
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