Before deciding who gets what portion of an estate, one should consider any factors that may affect the amount of money or assets available when planning the future of their finances. This includes any debt, final income tax payments and funeral and estate expenses. In many cases, the estate administrator may need to sell some assets to cover these claims against the estate.
After determining the remaining amount after expenses, the person may wish to make charitable contributions to reduce the total taxable estate. Estates valued over $5.34 million must pay federal estate tax as of 2014, but this limit changes over time. Some states have additional estate taxes along with this.
The next step is determining how much of the remainder of the estate goes to a spouse, children and other heirs. It is important to pay attention to any tax liabilities the beneficiaries will face from this and create the plan accordingly. Many people create a plan that minimizes the total amount of tax that the IRS collects from the estate to maximize the beneficiaries' inheritance.
Many people do not like to think about estate planning because they believe that they do not have enough assets to worry about or they have plenty of time to make decisions. However, anything can happen at any time, so it is important for people to always have a plan in place.
Even if a person only owns a few items of value, a will or trust could place those items in the right hands in the event that anything happens. When a person does not have an estate plan in place, that person's wishes may differ from how the court could handle the estate.
Source: Forbes, "Estate Planning 101: How to Divide Your Money", Larry Light, September 22, 2014