A will can be a valuable tool for avoiding estate tax when your spouse dies and your children inherit your things. It helps you determine who should take care of your minor children and minimizes family disputes. In addition, a will allows you to leave instructions regarding your wishes for your minor children. Unfortunately, only 64 percent of people have one. It’s time to take action to make sure your wishes are carried out when the time comes.
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64 percent of people don’t have a will
One study has found that 64 percent of Americans do not have a will. Interestingly, only one-third of millennials, who are the largest generation in the country, do not have a will. The reason for this lack of will-making is that younger Americans are generally unconcerned about their mortality and tend to perpetuate the myth that a will is unnecessary until later in life. But baby boomers and those of middle-class families realize the importance of having a will and are increasingly recognizing the importance of estate planning.
However, many Americans don’t want to think about dying. In fact, some may not even realize that they need to make a will. Some believe that it is only necessary for people with multi-million-dollar estates. Another reason for not making a will is that you may have designated a beneficiary for your IRA. Sadly, this means that you may not be able to leave your desired amount to charity.
It helps minimize family fights
A will allows you to name guardians for your children if you haven’t done so already. While the surviving spouse will usually be awarded custody, a will lets you name someone who will care for your children. This is especially useful for single parents, who must consider the situation of their children if they pass away. Nevertheless, keep in mind that these names aren’t legally binding and are merely suggestions for the court. You’ll need to consider this carefully because the court is responsible for deciding who gets what.
It allows you to make an informed decision about who should take care of your minor children
A will is an important document because it allows you to state your preferences for guardianship. In the event that you should pass away and no one has chosen to raise your children, a guardian will be appointed by the court. A will allows you to choose who should take care of your minor children. It also helps minimize conflict between family members over who will care for your children.
It is vital to have a will because a babysitter or adult sibling will not be able to make medical decisions for your minor child without authorization. Also, the Health Insurance Portability and Accountability Act (HIPAA) prohibits unauthorized people from accessing medical records. Therefore, only the parents or legal guardians will have access to your minor child’s medical records.
It can help minimize estate taxes
If you own a business, making a will is essential to reduce estate taxes. A qualified personal residence trust (QPRT) transfers your home into a trust, allowing the QPRT beneficiary to take over the property at your death. Although this doesn’t reduce the size of your estate, it can reduce your tax liability. For more information, read Denis Clifford’s book, Plan Your Estate, Make Your Own Living Trust, and The Executor’s Guide.
An intentionally defective grantor trust can help you minimize estate taxes by separating income tax treatment from estate tax treatment. This type of trust allows the trustor to separate his or her estate’s assets from his or her income tax and allows them to grow tax-free for the beneficiaries. Additionally, an intentionally defective grantor trust allows your beneficiaries to avoid gift taxation if they receive your estate. A grantor trust is a great way to minimize estate taxes.
The IRS allows individuals to give $15,000 per person each year without paying gift tax. Creating a donor-advised fund can let you give overtime to charity. Another effective strategy is a donor-advised fund, where the funds will be managed by a child. While these strategies may sound intimidating, they are not. Ultimately, ignoring estate planning could cost you and your family millions of dollars, so it is important to make a will to minimize estate taxes.
Estate planning should include all of the tax implications for your assets and family. Life insurance is important for some people. Depending on your lifestyle, it may be more important to get a policy for your children than to set aside money for college tuition. Named guardians can also help prevent expensive family court fights over who will raise your children. In the event of your death, the state may decide to distribute your accounts and property according to state rules.
Another way to minimize your estate taxes is to create a trust. Revocable living A/B trusts are a popular estate planning method that has been around for decades. These trusts divide the assets of a first-deceased spouse between two trusts. The B trust is funded with assets equal to the deceased spouse’s estate tax exemption. This way, a simple will can avoid paying the estate tax on the second-deceased spouse’s estate.
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