Estate planning is essential regardless of your tax bracket

Contrary to what many believe, estate planning isn't only for people who own mansions or multiple properties. Estate planning is simply defined as planning for what happens to your assets after you pass away. Establishing an estate plan for your things can benefit just about anyone regardless of gender, marital status, or tax bracket. And, at the most basic level, planning starts with designating beneficiaries on your financial accounts. Whether you're establishing a new retirement account or a life insurance policy, be sure you choose exactly who will get your assets if you're no longer around.

What is a beneficiary?

A beneficiary is usually a loved one (or in some cases a charity) that you choose to inherit your assets when you're gone. The person you pick must be of sound mind and have the legal ability to accept your gift. For example, if you give your assets to a minor, the court may appoint a guardian to manage the money on behalf of your beneficiary until they're of legal age.

What’s the difference between a primary and contingent beneficiary?

A primary beneficiary is the first person (or people) in line to inherit your assets should you die. You can split your assets among multiple primary beneficiaries. For example, you can designate your daughter and son to inherit your assets evenly (or if you prefer your daughter over your son, you can give her a higher percentage of your wealth). A contingent beneficiary will inherit your assets only if the primary beneficiary can't be located, if they refuse the inheritance (unlikely), or if they die before you.

It's also important to remember that beneficiaries do not have a right to your assets while you're still alive -- that means you're free to change your beneficiary designation at any time. Try not to hold this fact over your children's heads every time they do something naughty!

Why should I include a beneficiary on my financial accounts?

You can (and should) designate a beneficiary on all of your financial accounts, whether you have millions or just a couple bucks. If you don’t have a beneficiary named on an account, your family may have to go to probate court, which is a court that deals with matters of wills and estates, to get access to those funds after you pass away. The probate process is no fun and can be very long and tedious.

Again, when you record your beneficiaries on your assets, it's considered a contract. In fact, these beneficiary designations even supersede your will. Remember to include a beneficiary designation on any investment account, retirement account, or life insurance policy you may have. You can also designate beneficiaries for your real property, which is any property you own that’s immovable (e.g., land and real estate), and personal property, which is all of your movable property (e.g., furniture, vehicles, and coin collections). During benefits season, while you’re signing up for health and disability insurances, you should also verify that your beneficiary designation is current.

What is a power of attorney?

Another way to protect your assets is by appointing a power of attorney (POA). If you become mentally incompetent due to illness or accident, a POA is your written authorization to have another person act on your behalf. You don't necessarily need an attorney to appoint a POA; there are plenty of online resources that enable you to do this on your own (check out legalzoom.com). You can also limit the amount of "power" that your POA has and when they can use their "power" by outlining this in the POA document.

Start watching your assets

Don't wait until you win the Mega Millions to start estate planning. Protect your estate now by choosing beneficiaries for all of your assets. Stay tuned for our next blog on 5 reasons why you should have a will to learn how this document could help your family avoid going to court to settle your assets after you pass away.