A big part of your retirement plan is incorporating estate planning with wills and trusts. Estate planning is crucial because it will outline what happens to your assets once you die. No one wants to think about it, but it’s a necessary part of planning for retirement.
First off, a will tells the legal system as well as your family who gets what in the event of your death. If you don’t have a will, you’re putting the decision into the hands of the state. This can be very unfair to your heirs, not to mention it can take a very long time to get through all the red tape. Intestacy laws vary by state, but most stipulate that if you die and leave behind a spouse and kids, all assets will be divided between them. If you have no kids and no spouse, the state gets to choose which relatives will inherit your estate.
A will is important for anyone to have, but especially if you are a parent. It will make it much easier to transfer guardianship of minors when the time comes. But don’t worry: your will isn’t set in stone. You can always change it if you so choose. In fact, we recommend revisiting your will from time to time to make sure it still aligns with your wishes. While you’re doing that, go over your 401(k), stock portfolio, pension and life insurance policy to make sure those all look good too. As an aside, keep an eye on your broker and all transactions to make sure he or she has your best interests at heart. If you have doubts, you need a securities lawyer.
Going hand in hand with a will is a trust. This is a legal document that allows you to place conditions on how your assets will be given out when you die. You can also, incidentally, keep your gift and estate taxes to a minimum. In most cases, you’ll need a will to complement any trusts you set up.
A revocable living trust in where you can place most of your assets, used in conjunction with a pour-over will. You can name a guardian for your children, with the pour-over will ensuring that all the assets you want to include in the trust will still be there despite failing to retitle some of them before you die. Any assets in a trust not retitled may have to go through the probate court, where it will be decided who gets what assets.
A living will outlines your wishes for any life-sustaining medical intervention you would like taken — or not taken – if you are incapacitated due to illness or injury.
Wills and trusts should be set up early enough that you are of sound mind to do so – preferably when you get married and definitely when you have children.