Our clients often ask us about estate planning. What qualifies as an estate? When I die and pass on my assets to friends and family, what kind of taxes will they have to deal with?
Yes, we get these questions all the time. If you’ve been wondering about estate planning yourself, you’ll find everything you need to know below:
Everyone Has An Estate
Estates aren’t exclusive to Scrooge McDuck-like billionaires who swim in vaults of gold doubloons. Pretty much everyone has an estate, from a retiree with a small fortune in savings to a kid with a few twenty dollar bills stashed in their sock drawer. An estate is just something you want to give to someone else in the event of your death.
Everyone Has An Estate Plan, Too
Also, whether they know it or not, everyone has an estate plan. If you haven’t set up any sort of plan for yourself, the government has one for you.
When you die without a will, this is known as dying "intestate." Intestate laws vary by state, but generally, you can expect your estate to be distributed fairly evenly between your spouse and your children. In some states, your parents and siblings will also get a share.
No one you personally know will have any control over how your assets are distributed. Also, intestate laws tend to favor blood relatives, so if you’d like to give the bulk of your estate to a friend or a charity rather than a family member, you’re pretty much out of luck if you die intestate.
When There’s A Will, There’s A Way (To Control Who Gets What When You Die)
A will allows you to choose an executor – this is the person who will administer your estate. You’ll also be able to choose who gets what down to the last detail, and you can choose a guardian for minor children or anyone else who depends on you and can’t take care of themselves.
The $5.49 Million Mark
Most Americans don’t have to deal with the federal estate tax: in 2017, it only applies to people who have an estate that’s worth over $5.49 million.
You have to be careful here, though, as there are a few things that count toward your estate that you might not be considering, such as life insurance proceeds and retirement plan funds.
State estate taxes are a whole different story. Some states exempt most people like the federal estate tax, while other states will tax every single dollar that your estate is worth. You need to do some personal research (it wouldn’t hurt to consult an accountant) to find out how state laws will affect your estate.
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