For those in Texas who have aging parents, sitting down to talk to them about estate planning is a good idea. Estate planning can take years to prepare depending on the level of wealth and financial complexity; it is not something that can be thrown together at the last minute. Dying without a complete estate plan can make things much harder on the heirs.
Estate plan components
An estate plan should consist of several documents: a will, an advance directive for health care, a durable power of attorney in case they become incapacitated and a living will. Most of these cover health care decisions. The estate plan should also include the details of trusts, financial assets, savings accounts, retirement accounts like 401(k)s and anything else of value. A will alone might be enough, but more documents describing what the elderly couple wants are better, especially if they have complex finances.
Estate planning also involves creating trusts and other legal mechanisms that can reduce the impact of taxes on inheritances. There are a lot of ways to use trusts to cut down on the tax bill for an estate, and the right ones to use will depend on the family. The goal of using trusts is to preserve the value of assets like financial accounts and houses by shielding them from various forms of taxes that might apply, like the estate tax, gift tax and generation-skipping tax.
The earlier estate planning can take place, the easier it is for the plan to work. Conversely, waiting means that the plan may have gaps and lead to tax losses for the family. This is why it’s important to have estate planning conversations before it’s too late.