Step #1 - Calculate Your Net Worth
The very first step in building a good estate plan is to determine your net worth. It's relatively easy to make a quick calculation of your net worth by adding up rough estimates of the values of all of your assets - including bank and investment accounts, personal property (jewellery, collectibles, cars, boats), retirement plans, death benefit of life insurance, business interests, monies owed to you, oil and mineral rights, and real estate - and then subtracting from this total all of your liabilities - including credit card debt, car and other personal loans, and mortgages.
Once you've calculated your net worth, you will need to figure out if your estate will be liable for any estate taxes. You will need to know if your overseas assets would be taxed in their jurisdiction, bearing in mind some countries add on transfer or capital gains taxes due to heirs receiving assets. Certain countries would also tax heirs based on their residence.
Even if you have determined that your estate won't owe any estate taxes, there are also many other financial reasons why you will need an estate plan. Your personal situation should be examined to determine if you need an estate plan to take care of you, if you become incapacitated, and your family after you die.
Step #2 - Assess Your Financial and Family Needs for an Estate Plan
Even if the value of your estate isn't enough to incur taxes, you will still need to look at other financial reasons why you will need an estate plan. Probate can be very expensive and time-consuming, and yet it's really easy to avoid. Aside from this, if you own one or more businesses, have significant retirement assets, or will be expecting a large inheritance, then you will need an estate plan to ensure that your property (1) can be managed by someone of your choice in case you become incapacitated, and (2) goes where you want it to go without any interference from a probate judge.
And, regardless of your net worth, you will still need to assess your overall need for an estate plan by looking at your family situation. If you have minor children, or a blended family, or if you're single, or if you own homes in different countries, or if you have dependent relatives, then you will still need an estate plan to ensure that your assets (1) can be managed by someone of your choice in case you become incapacitated, and (2) go where you want them to go and without any interference from a probate judge.
Once you determine your overall need for an estate plan, be it for financial or family reasons, or both, the next step is to find and hire a qualified estate planner or lawyer to help you create your estate plan.
Step #3 - Determine if You Only Need a Will or additionally a Discretionary Living Trust
There are many reasons, apart from tax savings for a Living Trust.
A Trust is exempt of probate due to the fact that you would have “given” assets to the Trustee to look after, so they no longer belong to you to give via your Will. You can still be a beneficiary, in most cases, but no longer “own” the asset. Therefore, anything in the Trust is immediately distributive to your named beneficiaries. There is no need for your loved ones to incur financial hardship by waiting for the courts to give their permission on distribution (probate.)
Another reason, as mentioned above is blended families. You may have children from previous relationships and important for you to ensure their continual financial care. If you are no longer with the other parent, who would look after the finances on your behalf?
We no longer belong to huge families and sometimes, imposing big and ongoing financial decisions to a sibling can cause unwanted and unneeded stress.
Once you've determined if you're going to incorporate a Living Trust into your estate plan, you will need to create a plan for what will happen to you and your property if you become mentally incapacitated.
Step #4 - Create a Plan for What Happens if You Become Mentally Incapacitated
Disability planning is an important part of any estate plan, and yet it's often given less attention than planning for what happens after someone dies. Without a good disability plan, your assets may end up in a court-supervised guardianship and, in turn, your loved ones will lose control of you and your property.
If you have assets in a Living Trust, this is immediately accessible for your loved ones to take care of you.
Step #5 - Create a Plan for What Happens After You Die
Once you've designed a good disability plan, the next step is to create a plan for what happens after you die. This will include deciding who will inherit what and when they'll get it. Only you can decide if you want to leave your estate to family, friends, and/or charity. Once you decide who, you will need to make a plan for when they'll get it.
Aside from this, if you're married, then you will need to understand the laws of your assets per country, regarding how much your spouse is entitled to inherit because in most countries, unless you have a Will, your spouse does not inherit all.
You will also need to think about your funeral arrangements (cremation is the only option in Hong Kong) and make a plan for where the cash will come from to pay your final expenses. This should go into your Letter of Wishes, however, as your Will could take months to be read.
Once your disability and death plans are in place, you will need to decide who to put in charge of carrying out your wishes.
Step #6 - Choose Your Fiduciaries Wisely
As part of putting your estate plan together, you will not only need to decide what should happen to you and your property if you become disabled and what should happen to your property after you die, you will also need to decide who should be in charge of carrying out your wishes.
Selecting the right people as your estate planning fiduciaries (Executor/s and /or Trustee/s) is probably more important than deciding who gets what and when they'll get it. Why? Because if the people you've chosen don't want to or simply can't serve, or if the people you've chosen do a bad job, then your beneficiaries will be unhappy and important decisions will be left up to a judge.
In other words, all of that good money that you spent on your estate plan will have been wasted. It is also important to note that you can choose different people or institutions to fill different roles and multiple people or institutions to serve together, such as two people and an institution to manage finances and one person to make health care decisions.
Once you have your foundational estate plan in place, including a disability plan, a death plan, and who will be in charge of carrying out your wishes, the next step will be to determine if you need any advanced estate planning.
Step #7 - Fund Your Living Trust
If you've made it this far and decided to use a Living Trust as the foundation of your estate plan, then you will need to get your assets titled into the name of your trust and update the beneficiaries of your life insurance policies and retirement accounts to coincide with the provisions of your trust. If you don't do this very important step, then all of the hard work that you put into the first few steps will have been for nothing.
Once your trust is funded, which realistically could take a few weeks to several months to complete, unfortunately, you won't be completely done with your estate plan. Why? Because day in and day out things will happen to you and your loved ones that will have a direct impact on your estate plan, and so you will need to keep on top of your plan to ensure that it will still work the way you expect it to work as the years go by.
Step #8 – List your Assets
You should not list assets in your Will or Trust as these may come and go, unless a specific legacy is named such as a family home or antique jewellery per se. Therefore, it is important for your fiduciaries to know what they have to collect, not just for whom.
You should have a Will for each country that you hold assets in and each Will should have its own list attached of assets such as bank account names/numbers, pension trustee, stock-broker, financial adviser, mortgage holder etc.
The easier you make it for people to find your assets, the faster they can be distributed.
Millions of dollars are left in financial institutes as people have died yet not told anyone of what they own.
Step #9 - Review and Update Your Estate Plan
Once you've completed steps 1-8, unfortunately, you won't be done with your estate plan. Why? Because things will happen day in and day out that will have a direct impact on your estate plan. In other words, the estate plan that you create today will be the perfect plan for you and your loved ones at this given point in your lives. But next week, or next month, or next year your life will go through a multitude of experiences, both good and bad, that will make today's perfect estate plan not so perfect tomorrow.
For example, you could get married or divorced; have or adopt children; buy or sell a business; retire; move across country; win the lottery; lose your spouse or other loved one due to an illness or injury or inherit a small fortune from a family member or friend. All of these things will have a direct impact on your estate plan, and so you will need to keep on top of these things in order to keep your estate plan up to date so that it will continue to work as you expect it to work as the years go by.
Don't be lulled into a false sense of security once your initial estate plan is in place. Estate planning is a life-long process, not a one-shot deal, and your plan needs to change as your life and the laws change.
Be sure to review and update your estate plan yearly, every few years, or on a more frequent basis - as often as you and your estate planning attorney determine is appropriate for your situation - otherwise your perfect estate plan for today will only be worth the paper it's written on tomorrow.
Happy to help with your own situation, so feel free to contact me.
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