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Chapter 26

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The final step in financial planning is distributing the wealth that you have accumulated in your lifetime.This is also referred to as estate planning. It is important to do estate planning to ensure that yourwealth is passed on to your family without delay and distributed as per your wishes.

Definition

Your estate comprises all your assets at the time of your death. It includes your home, bank accounts,

insurance policies, and other assets.

Goals of Estate Planning

Estate planning helps you to:

Arrange for an orderly transfer of your property in accordance with your wishes.

Minimize the taxes on your estate and maximize the inheritance for your beneficiaries.

Distribute your assets as per your wishes.

Prevent or remove delay in transfer of assets from your name to your heirs name.

Appoint a guardian for minor children.

Reduce legal hassles in administration for your estate.

The most critical component of an effective estate plan is a properly prepared will that transfers your

assets in accordance with your wishes.

Your Will

Preparing a will protects your family and ensures that your wishes will be carried out. Anyone of legal age

with any property should have a will. If you die without a will, or what is known as intestate, your estate

will be distributed as determined by personal law applicable to your community and administered by

someone appointed by a court. In addition, the court will decide who will care for your minor children.

A will enables you to:

Distribute your property as you wish, including personal property of sentimental value.

Provide for future management of investments or a family business.

Designate guardians for your minor children. Select the person you want to distribute your estate, eliminating the requirement of a court-appointed

administrator. This person is known as the executor of your will.

Minimize taxes and administration expenses in the settlement of your estate.

Provide for special desires, such as charitable contributions.

Distributing your wealth

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Selecting an executor

An executor should be named in your will to see that its provisions are carried out. The executor must be

somebody who you can trust completely. After your death, the executor has to:

Prepare a complete inventory of all your assets.

Collect any money owed to you. Pay your debts and expenses, as well as those of your estate, including funeral expenses, tax

liabilities, and administration expenses.

Notify life insurance companies of your death.

Sell assets as necessary and invest others prudently to provide income during the time that the

estate is being administered.

Prepare and file all necessary tax returns for you and your estate.

Distribute the estate to the people named in your will.

Account for all receipts and disbursements of the estate.

Planning for incapacityIncapacity means a state of health when you are no longer able to manage your property or take your own

decisions. Incapacity may result because of an accident or disease that puts you into coma or a similar

state. It is important to plan in advance as to who will manage your property and make health-care

decisions for you when you can no longer handle these responsibilities. Since incapacity can strike

anyone at anytime, all adults over 18 should plan for it.

The simplest way to plan for incapacity is to create a General Power of Attorney in the name of your

spouse if you are married or in the name of someone you trust implicitly (most probably, your parents) if

you are unmarried.

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Chapter Review