Many California residents procrastinate with estate planning. However, estate planning is a good idea for adults of all ages since the unexpected could happen. People who write estate plans can also use them to ensure that their beneficiaries get the maximum possible amount without a portion of the estate being eaten up through taxes. Estate planning can also help to ensure that your assets will go to the people you want to receive them instead of them being passed to the wrong people. Here are a couple of ways estate planning can help your beneficiaries receive a greater portion of your assets.
Reducing income taxes
Some people assume that they only need to write estate plans if they are very wealthy so that they can avoid estate and gift taxes. However, people who receive certain types of assets might also have to pay higher income taxes. For example, if you have a 401(k), a traditional IRA, or another tax-deferred retirement account, the beneficiary of one of these types of retirement accounts will have the amounts they receive added to their incomes. This can bump them into a higher income tax bracket, and they will also have to pay income taxes on the total amount distributed to them. Converting your traditional IRA or 401(k) to a Roth IRA can help your loved ones to avoid having to pay income taxes on what they receive.
Avoiding estate and gift taxes
If your estate is worth $11.58 million or more as an individual, your estate will be subject to federal estate taxes. Careful estate planning can help you to reduce the value of your estate so that it falls below the threshold amount. This can be accomplished through carefully planned gifts during your life, charitable contributions, and creating a trust.
If you die without writing an estate plan, your assets might be distributed to people you did not intend to receive them. When people die without estate plans or wills, their assets are passed according to the state’s intestacy laws. Estate planning helps to avoid unintended consequences and can help your family to preserve your wealth.