It doesn't matter if you're still young; you need to consider planning your estate. If you have assets you want to leave to specific family members, planning your estate will ensure the entire process goes smoothly. Don't let your loved ones struggle to settle your estate while mourning you. Check out these five tips to help you plan your estate to make it easier for your beneficiaries.
Identify and Update Your Beneficiaries
Start by determining who gets what. If you have life insurance policies, make sure all the beneficiary information is updated. Above all, however, make sure you tell everyone who is getting what. This will reduce the risk of arguments or surprises that may make someone contest the will. In some cases, you may wish to delegate how money is spent. For example, you may wish to leave your grandchild money to start a business or buy a home. In this case, you can add it to your estate. You can also delegate money to be used to take care of a disabled adult child or an elderly spouse who lives in a nursing home.
Utilize Retirement Plans
If your employer offers a retirement plan, you should sign up as soon as possible. Retirement savings are a great way to save for your future, pay for your funeral or leave money to loved ones after you pass away. You typically can't take money from a retirement plan without severe penalties. In many cases, your employer may even match a certain percent of your monthly contribution for free. Even if your employer doesn't offer a retirement plan, it's a good idea to start one through a private provider. Not only can you not touch the money as it builds, but money in retirement plans typically earns excellent interest.
Diversify Your Investments
Don't put all your eggs in one basket because you never know if one investment may fail. Even different retirement plans offer different pros and cons. For example, a traditional IRA and a Roth IRA both let you save money and have penalties if you withdraw money early. However, with a traditional IRA, you can use your contributions as tax deductions, but with a Roth IRA, you can't. On the other hand, when it comes time to withdraw payments from your retirement plan, you don't have to pay taxes on Roth IRA payments. You do have to pay taxes with traditional IRA payments. Make sure your investment plan is robust, including different types of plans and different types of investments, such as real estate, stock, antiques, etc.
Help Lower Tax Costs for Beneficiaries
The problem with leaving money to your loved ones is the taxes. Even though you likely already paid taxes on all the money you've earned and property you own, your loved ones will also have to pay taxes when they receive their portion of your estate. Depending on your preference and your investments, you may be able to reduce the tax cost for beneficiaries by only leaving them tax-free assets, such as life insurance. You can leave the taxable assets to charities, which are exempt from paying taxes on these types of contributions.
Do Some Pre-Planning for Your Funeral
When you pass, the hardest part for your loved ones will be planning your funeral, so help them by doing some pre-planning. Start by ensuring they know if you want to be cremated or buried, and if you want to be buried, where you want to be buried. If you have the money, it may also be a good idea to locate a funeral home and prepay for some services. You can even purchase your burial plot or coffin, relieving some of the stress and financial burden from your loved ones.
No one wants to talk about the day they may be gone, but it's important your loved ones know your wishes. If you want to help your loved ones, the best thing you can do is help them now. Get started today by making a list of your beneficiaries, assets, and funeral plans.