Planning for the future: estate planning 101

estate planningTax season is over, so now is the time to start securing your family's financial future. And you don't need to be a millionaire to do estate planning.

"Estate planning isn't just for the rich," says Frank Armstrong, founder of Investor Solutions, Inc. and co-author of "Save Your Retirement: What to Do If You Haven't Saved Enough or If Your Investments Were Devastated by the Market Meltdown." "Everyone should insure that the distribution of their assets is as efficient as possible. But, estate planning includes 'living wills,' power of attorney in case of disability, gifting during life, proper designations for insurance, IRA and qualified plan assets and many other contingencies."

Here are five things you should do that will stand the test of time:

Fund your own retirement

Perhaps the biggest financial gift you can give your kids is independence – independence from being your financial caretaker after you stop working. When Armstrong was growing up in the 1950s, he recalls having both sets of grandparents and a godfather living with his family. "Everyone thought that was normal. Today, they would not think that was normal," says the certified financial planner. So the first order of business is making sure you have enough money to live your golden years out in comfort.

Stretch that IRA

Take advantage of the "stretch" IRA, a provision that allows you to defer taxes or avoid taxes until the money is distributed to family members as far down the line as your grandchildren. "If I set it up so my grandchild is a beneficiary for part of my IRA, each year he will have to take a minimum distribution over his lifetime," explains Armstrong. "Initially that may only be 1-2%. And it doesn't get very large until he gets to 75-80. So the vast majority of the fund is growing in a tax free or tax deferred environment until very, very late in the grandchild's life."

The provision is applicable to both the traditional IRA and the Roth IRA.

Name the right names
Hence, when it comes to IRAs, Roth IRAs, pensions, annuities, and life insurance, pay attention to whom you've designated as a beneficiary. Not only can you stretch assets like the IRA and the Roth IRA, you can also protect them from creditors. Armstrong rolled over a large pension plan into his IRA because in Florida where he lives, IRAs are protected against creditors. In addition, he warns, pension plans "can't take complex beneficiary instructions so you can't designate trusts or other things you would like."

Different states have different rules about retirement assets so do your research.

Spend on education
If you're in a position to give cash gifts to your children and want to avoid estate tax issues, investing in education is a surefire way to make the most of your money. Right now, you can gift $13,000 to any individual and $26,000 per person for a married couple. If you set up a 529 plan (college funding), you can move $26,000 times five from your estate this year to each child or grandchild. Should you live five years more, that money is no longer considered part of your estate and subject to estate taxes.
Another plus: whatever 529 money is left over, it can be passed down.

Make it irrevocable
Another handy tool estate planners use is the irrevocable life insurance trust. Set up a trust and, rather than give each family member $13,000, use that money to purchase and pay the premiums on a life insurance policy. Institute "Crummey powers" and beneficiaries can withdraw their share of the gift within a specific time window or allow the money to continue to fund the policy. The aim is have the policy not be considered part of your estate.

But "irrevocable" is just what it sounds. If you change your mind about your beneficiary, you may not get your money back.

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