By Jonathan Tse
It is very important to make an estate plan in the event that you die and leave behind loved ones who depend on you greatly. Many people lack a comprehensive and adequate estate plan that outlines how all wealth is allocated. In the case that this happens, everything goes into the hands of the government who will take on the task of dividing up wealth that is left behind, or even worse, will take possession of the wealth.
The estate plan should not only consist of a will but also a durable power of attorney and also a health proxy. For some people, it would also be beneficial to have a trust as well if one’s estate is more complex and could be liable for more taxes. One important tip is to take an inventory of all the assets in possession so that it would be easier to allocate them to your heirs. A big problem with estate planning is that there may often be things that are left out and are not allocated. Also, in order to simplify one’s will, one can try to get rid of assets before death through joint tenancies or transferring ownership to trusts. In order to avoid confusion and conflicts about who gets what after your death, it may be good to speak to your heirs to clearly outline who will receive what. If you do not want to allocate wealth to a certain child of yours, you must clearly state that in your will.
One last tip relates to tax laws. Since all income is taxable, for properties with lots of taxable profit, it will be beneficial to keep the property until death so that the taxable income will disappear and your heirs will gain the property with the basis at fair market value. For property with a deductible loss, it is important to sell the property before death to take advantage of the deduction otherwise it will be lost after death.