If you are in your twenties or even early thirties, you may think you are far from a place where you need to start estate planning. The reality is that estate planning is not just for people over 50 or those who are in the financial one percent. The earlier you start the process, the easier it will be for you to make adjustments as your wealth builds.
By having a solid estate plan in place, not only will you feel more secure about your legacy, but your heirs will thank you for it. A good estate plan will address issues such as how your executor or estate administrator will divide your assets among your beneficiaries and mitigate the tax consequences that sometimes come with inherited property. Read further to find out more about estate planning strategies that can help you protect your legacy.
Write a will
A will is probably the most common tool used when it comes to estate planning. Sadly, many people do not bother to create a will which can lead to complications after death. If you were to pass away without a will, then your estate will be in the hands of a Colorado probate court.
Name your beneficiaries
With certain assets, such as life insurance policies and retirement accounts, you can name one or more beneficiaries. By doing so, the named beneficiaries will immediately gain ownership of the accounts when you pass. If you do not list any beneficiaries on these kinds of accounts, these assets will also pass to the probate court. Be sure to periodically update your beneficiary information, especially when there have been major changes such as the birth of a new child or a divorce.
Create a trust
A trust has several benefits, especially if you have a sizable estate. First, it can include certain conditions for distributions to your beneficiaries. For example, you can make a condition that your son will not receive any distributions from the trust until he is 25, or perhaps you want the money to be used for a college education first. Your estate planning attorney can help you choose from a living trust, revocable trust, irrevocable trust or even a marital trust depending on your specific needs.
Convert those retirement accounts
If you have a 401(k) or a traditional IRA that passes to one of your children, or someone else that is not your spouse, they might have to pay a hefty tax bill on it. By converting the accounts to Roths, they can get tax-free distributions. However, keep in mind that at the time you make the conversion, you will have to claim that amount as taxable income on your tax return. If possible, try to make the conversions over the span of several years to avoid having to pay taxes in a higher bracket.
Give it away
One of the things you can do to ensure your money passes to your loved ones tax-free is to make gifts. At the moment, you make $14,000 gifts per year to each individual that you choose without them having to pay income tax on it. Doing this may also reduce the value of your estate and thereby reduce the amount of taxes you will have to pay to the Internal Revenue Service.
If you have been considering estate planning, take it as a sign that it is time to start the process. If you want to protect your Littleton property and other assets for your heirs, the best thing to do is to have a strong estate plan in place.