Personal Finances and Estate Planning
When it comes to estate planning in Huntsville, AL—or anywhere else in Alabama—it’s mostly a matter of financial planning.
However, that financial planning involves more than simply deciding how your assets will be allocated after you’ve passed or had a health event. There’s also the component of ensuring that whoever you leave behind is also financially taken care of. This goes beyond the scope of what assets you leave them or how much is in your shared bank account when you’re gone.
In this article, we will discuss the importance of your personal finances in estate planning. In addition, we provide some top tips on how to go about the financial planning process.
Keep reading to learn more.
Your Finances and Estate Plan
You probably already have a certain level of understanding of what goes into financial planning. Namely, the process of creating a lifestyle-friendly budget, saving money, planning for your future, and maybe even your retirement.
Obviously, managing your money is an essential part of life at any stage.
However, your personal finances are critical when creating an estate plan, as it’s more than just planning to save a certain amount of money for your family and funeral arrangements.
A comprehensive estate plan doesn’t just designate who gets what and who will make financial and health care decisions should you pass away or become incapacitated. It’s also meant to outline the specifics of how your personal finances will be taken care of in the following aspects of life:
Retirement
When we talk about retirement and estate planning, we’re talking about the retirement accounts you may have and what will happen to those accounts should something happen to you.
401(k)s, IRAs, Roth IRAs, and other retirement accounts are great for future savings for your golden years, but they come with certain strings attached. Those strings include some pretty unique laws regarding who will inherit these assets and the tax benefits for those beneficiaries.
For example, if you’re married, your 401(k) benefits may go directly to your surviving spouse—inside or outside of probate court, depending on how the transfer on death provisions are filled out. Additionally, IRA accounts can be passed as an inheritance to the surviving children, allowing these assets to grow tax-free over time.
Healthcare Costs
As you may know, estate planning is essential for the potential healthcare costs you may end up with.
Without proper planning, you risk losing it all to nursing home care costs, hospital costs, and any other type of long-term care you may require.
Improper planning can also work against you when it comes to your qualifications for Medicaid.
Estate Taxes
Estate taxes can end up diminishing the value of your entire estate and the amount that will eventually be distributed to your beneficiaries. This is because these taxes are levied through the federal government—the IRS—under federal estate tax, which is the “tax on your right to transfer property at the time of your death.” It also includes gift taxes.
Fortunately, there are no estate taxes on the state level here in Alabama. However, under federal tax law, a gross taxable estate is potentially taxed over the threshold amount, less certain deductions include the following:
The total value of all property you had ownership or interest in at the time of your passing
Any life insurance proceeds that are payable to your estate or your beneficiaries if you owned the policy at the time of your passing
The value of any annuities that are payable to your estate or beneficiaries
The value of any property that you’ve transferred within three years before your passing
The allowable deductions include any debts you owed at the time of your passing, such as mortgage debt, funeral expenses, marital deduction (the value of the property that’s passed directly to your surviving spouse), charitable gifts, and the state estate tax if applicable.
Funeral Service Costs
The average funeral cost in the United States currently ranges between $8,000 and $12,500, depending on the state you live in. Alabama funeral services actually average below that range, but even so, it’s still a good chunk of money.
Usually, when you plan your estate, it includes a last will and testament, which outlines your final wishes—and the funds to ensure that those last wishes can be carried out.
Being that funeral services are costly, it’s not something you want to overlook in your planning. Otherwise, you may be leaving your family with no way to pay for your burial.
Should You Hire an Estate Planning Attorney?
Most people turn to an estate planning attorney when it comes to estate planning. However, an estate planning attorney’s expertise will only get you so far simply because they don’t have direct access to your personal assets or any financial accounts.
Therefore, your estate planning attorney can only draft your estate plan based on the information that you provide them with. This also means if you forget to include a particular property or financial account in your meeting, it could become problematic—especially if you have a revocable living trust that needs to take possession of the property.
This is why you should consider hiring a financial advisor to help you plan out your estate. They can advise you on how to move forward in updating your beneficiaries and other areas of your estate with your wills and estates attorney—who you’ll meet with periodically when you need to update your will, trusts, and so on.
An experienced financial advisor can sit down with you and your Alabama estate planning attorney to review your financial information and help you create a fool-proof plan for your assets and personal finances. This can help if you experience a health event or pass away unexpectedly.
Your estate isn’t something to take lightly. It’s your life’s work and savings as well as your family’s potential financial safety net. That’s why you need an estate attorney to ensure you’ve got an airtight plan.
Contact us today to speak with lawyer Sarah S. Shepard or another experienced Huntsville attorney about planning your estate. We can help you plan the most critical parts of your personal estate plan.