Assets are the accumulated wealth you’ve gained throughout your career. They represent your ability to generate future income and are the keystone of financial security.
It’s estimated that the median net worth of an adult American is around $120,000. Their assets are mixed between physical goods, such as their homes and vehicles, and intangible assets like investments and savings. That’s a lot of assets to consider and one that can be difficult to keep track of. Moreover, it can be tough to know what to do with them when you pass away. It’s a dire thought, but you certainly don’t want your inheritance to be fought over by those left behind.
Many financial advisors suggest most people start thinking of estate planning when they have a couple of assets to their name. It can be done in several ways, with wills and trusts being the most popular. But, first, let’s discuss estate planning and the laws surrounding it.
What is Estate Planning?
Estate planning is the process of organizing and managing your assets in a way that ensures the court will distribute them according to your wishes after your death. It’s a complex and vital task because several laws govern how estates must be managed.
The first step in estate planning is to inventory your assets. Your assets include physical goods, such as your home or car, and intangible assets, such as savings accounts or investments. Once you have a clear picture of what you own, you can start thinking about how you want those assets to be distributed after your death.
There are several ways to do this, but wills and trusts are the most common. Wills are legal documents that detail how you want your assets to be distributed after your death. They are typically used to distribute physical goods, such as homes or cars. On the other hand, trusts are used to manage and distribute intangible assets, such as stocks or savings accounts.
Advantages of Estate Planning
There are many advantages to estate planning, chief among them being the peace of mind that comes with knowing your assets are distributed according to your wishes. It can also save your loved ones a significant amount of time and money, as there will be no need to go through probate court to settle your estate.
What Are the Laws Surrounding Estate Planning?
Many laws govern how estates must be managed. The most important of these are probate laws. Probate is the legal process of settling an estate after someone dies. It involves going to court to have a judge appoint an executor, who will then be responsible for distributing the deceased’s assets according to their wishes.
Probate can be a time-consuming and expensive process, so it’s essential to have a plan to minimize its impact on your loved ones.
Another important law to be aware of is the federal estate tax. This tax is levied on the transfer of property after someone dies. It’s important to note that not all estates are subject to the estate tax, as there is a threshold that must be met before the tax kicks in.
It’s also important to know about the most common forms of inheritance laws, intestate succession, and community property.
Intestate Succession
Intestate succession is the process by which an estate is distributed when the deceased did not leave a will. In this case, the assets will be distributed according to state law. Each state law is different, but typically, the assets will go to the deceased’s spouse and children. If the deceased were not married and had no children, the assets will be distributed to their parents or other relatives.
Community Property Laws
On the other hand, community property laws dictate how assets acquired during a marriage must be divided in the event of a divorce or death. It states that all property acquired during a marriage is owned equally by both spouses.
When it comes to divorce, all assets must be divided evenly between the two spouses. But evenly dividing assets can be pretty confusing, and you’ll most likely need a professional to help you out. A divorce attorney is a professional that can look into your situation and help you determine the best way to divide your assets. They can also mediate specific problems that might arise in the division of assets.
Estate planning can be a complex and overwhelming process, but it’s crucial for every American. By familiarizing yourself with the laws surrounding it, you can ensure that your assets will be distributed according to your wishes after your death.
