Estate planning is an important concept for everyone, regardless of the size of the estate. For women, however, it is even more important for several reasons. Women, on average, live longer than men and must manage living expenses for a longer period of time. Women also make less money on average than men and may be at a financial disadvantage when their spouses die. It's never too late to organize your financial life and plan how you will pass on your wealth to your beneficiaries. Here are 10 critical things that women should know about estate planning.
SEE: Top 7 Estate Planning Mistakes
Everyone Needs a Will
A will formalizes your wishes for how you want your assets handled after your death and to whom they should be gifted. Without a will, you die intestate and a court decides how your assets will be split up. Even if you have only a small retirement account and a car, it is important to specify who receives your assets.
Estate Planning Matters
There may be tax implications of transferring assets after your death. While all transfers to a living spouse are tax-free, willing assets to adult children or other beneficiaries may cause the estate to have to pay tax. This can lead to having to sell assets to pay those taxes. Planning ahead of time minimizes taxes and ensures that your beneficiaries receive the maximum amount of your assets - even if you don't have many.
Choose an Executor Wisely
An executor is tasked with handling your estate until all taxes are filed and paid and the assets distributed. Many people choose a relative or close friend as executor, but be sure to pick one who has some financial savvy. You are trusting them with all the money you have left in the world. It's important to ensure it is transferred in the right way to avoid extra taxes and potential lawsuits.
SEE: How To Choose The Right Executor For Your Estate
Trusts Can Keep Your Assets in the Hands of Those You Choose
When you think of trusts, you may think that they only apply to the very wealthy. Trusts can help even those with smaller estates to protect the assets and ensure they go where you intend. Trusts can keep money protected from children until they are older, and they can often keep ex-spouses of beneficiaries from gaining access to the funds.
Consider Passing on Assets Before You Die
If you plan on leaving some of your estate to someone other than your spouse, it may make sense to start gifting it to them before you die. You can gift $13,000 a year in cash or other assets to each beneficiary without triggering the gift tax. It is one way of keeping more money out of Uncle Sam's pocket.
Evaluate Your Estate Planning After Your Spouse Dies
Many people don't revisit their estate plans once it has been created, but changes in circumstances mean that it's time to pull it out and make changes. If your spouse dies before you, you will have to change beneficiaries for all of your assets.
Name the Beneficiaries of Your Retirement Accounts
If you hold IRAs or other retirement funds, the contracts allow you to name your beneficiaries. This facilitates the transfer of these funds. If you only name the recipients in your will, the transfer can be held up until the entire estate is settled. Make sure that you have directed the account managers to specify the beneficiaries.
Maintain a Joint Account with Your Spouse
If you or your spouse is ever incapacitated or dies suddenly, it may take time for the other spouse to obtain legal access to the deceased's individual accounts. In the meantime, there will be regular ongoing expenses. There may also be new medical expenses or other expenses to cover. A joint account allows both spouses to access funds easily and will make the transition smoother.
SEE: Should You Open A Joint Bank Account?
Create a Pre-Nuptial Agreement Before Remarrying
Each state has its own laws regarding the division of assets in a divorce or upon the death of a spouse. If your plan is to transfer your assets to your children or grandchildren rather than your new spouse, it's important to see an estate attorney to set up a pre-nuptial contract designating your spouse's legal access to your assets. This allows your executor to legally enforce your beneficiary choices.
Learn How to Manage Your Accounts
There was once a time when almost all family finances were handled by the husband. Today, many more women are active in bill-paying, insurance shopping and other fiscal duties. If you aren't the spouse that handles the day-to-day finances in your family, get up to speed on how to do so. This way, if your spouse dies suddenly, you aren't left floundering with the finances.
The Bottom Line
While it may seem easy to put estate planning off until "later," it's the most important way that you can preserve your wealth and pass it along to those you care about. A solid estate plan helps those you leave behind handle your assets and follow your final wishes.
SEE: Estate Planning: 16 Things To Do Before You Die