As a gift planning advisor with Wycliffe Foundation, I travel the country to meet with Wycliffe partners interested in learning more about their charitable estate planning options. When the topic of estate planning comes up, many people have similar questions. Let’s look at the top five.
1. What exactly is an estate plan?
A basic estate plan involves a Will or Revocable Living Trust, Financial Power of Attorney, Medical Power of Attorney and Living Will. Sometimes the medical documents are combined and called an “Advanced Healthcare Directive.”
2. Am I too young for a will?
The average age of those creating their first will is 40. While the timing is a personal decision, from a planning perspective, the earlier you do this the better. Not only does having a will in place bring peace of mind, it ensures that planned distribution of the assets entrusted to you is in alignment with your stewardship goals.
Once you have an estate plan in place, you’ll want to update your plans any time you have a life event like a move to another state, change of marital status, the arrival of children, change in assets, etc.
3. Do I really need a will (or trust) if I don’t own much?
Yes you do! If you don’t have a will, your state of residence will decide how and to whom your estate will be distributed. This “default” plan likely won’t reflect how you would want the estate entrusted to you to be distributed, and it won’t include any ministries.
4. What’s the difference between a will and a trust?
One main difference between a will and a trust is that a will goes into effect only after your lifetime, while a trust can take effect as soon as you create it.
Both are legal documents that direct who will receive your property and that appoint a legal representative to carry out your wishes. By creating a will and/or trust, you ensure that your resources will best provide for those you love and the ministries you care about most. A will can also be used to appoint guardians for minor children.
5. Will I still have to pay estate taxes?
That depends on the size of your estate. Currently, federal tax law exempts the first $5.6 million from estate taxes ($11.2 million if you are married).
Most of us don’t need to worry about federal estate taxes. However, there is another tax to think about. No matter what the value of your estate, if you own qualified retirement plans (e.g. IRA, 401k, 403b, etc.) your heirs will be liable for paying income taxes on these assets.