Aside from taking a look at your family matters, you'll also need to review your finances in order to assess your need for an estate plan. The following financial “red flags” will help you to make this determination.
Your estate will be subject to state and/or federal estate taxes. Currently the amount exempt from federal estate taxes is $3,500,000, but the states that have an estate tax have varying exemptions. Sitting down with a qualified estate planning attorney in your state will allow you to assess your tax liabilities and put a plan in place to minimize them all.
You own one or more businesses. Do you own a business that will simply stop if something were to happen to you? Or are you in business with one or more other family members or outside partners? In either case, you'll need an estate plan to address what will happen to your interest in the business if you become mentally incapacitated or die.
You have significant assets in 401(k)s and/or IRAs. Retirement accounts such as 401(k)s and IRAs are designed for you to live on after you retire, not to pass on to your family after you die. Aside from this, retirement accounts have significant estate and income tax consequences built into them when they're transferred to your beneficiaries after your death. If you have $200,000 or more in 401(k)s or IRAs, then you need to work with an estate planning attorney to formulate an appropriate plan for these assets that will take into consideration your wishes as well as all tax implications.
You own a significant amount of life insurance. A common misconception is that the proceeds received from life insurance pass "tax free" to the beneficiary of the policy after the policy owner dies. While it's true that the proceeds will pass income tax free to the beneficiary, they won't pass estate tax free if the policy was owned in the insured's individual name at the time of their death. You and your estate planning attorney can discuss ways to minimize the estate tax impact of life insurance on your estate as well as ways to use life insurance to pay taxes or replace taxes that do have to be paid and provide financial security to your family.
You've inherited, or will be inheriting, a significant amount of assets. If you expect to inherit a large sum of money or other assets, then the right time to plan is before you receive them, not after. Before the assets become your own, you can work with an estate planning attorney to put a plan in place that will minimize the affect that the inherited assets will have on your own estate. This is particularly important if you already have your own sizeable estate, are in a risky profession prone to lawsuits, or worried about a possible divorce. On the other hand, if you've already inherited the assets, then you can still work with an estate planning attorney to minimize estate taxes and protect your inheritance from creditors or your spouse in a divorce.
