Organizing for Tax (and Estate Planning) Season
It is the beginning of 2018, and so it is officially tax season. Fortunately, you have until April 17th to file your taxes, but you should soon begin receiving your W-2 or 1099 forms to start preparing your taxes. You also get to review your last year to begin figuring out what life events may impact your taxes.
Preparing for taxes may not seem like the best time to review and update your estate plan, but it is actually a perfect time. Much of your tax preparation lines up with what you need to do for estate planning, and so you can do two tasks for less than double the amount of work.
Some things to think about for taxes and estate planning:
- Did you or any descendants get married or divorced?
- Did you have an addition to your family via birth or adoption?
- Did any descendant turn 18?
- Did you have a long-term or substantial health crisis during 2017?
- Did you buy or sell any real estate?
- Did you move to another state?
- Did you buy, sell, open, or close a business?
- Did you make any donations to charity?
- Did you accumulate any new assets, such as a new IRA, 401(k), or life insurance policy?
The next step is gathering the paperwork as “evidence” for these life events. These documents can help you prepare your taxes and your estate plan.
Now, let’s discuss how these changes with your tax situation can impact your estate plan.
If you already have an estate plan
If you already have an estate plan, you main need is to ensure that you are maintaining your estate plan up-to-date, so it always reflects your goals and life situation. Because of changes in the law, changes in your life, or changes in the lives of your loved ones, you may need to review or even update your estate plan. If you have a new business, you need to put that business into your estate plan, or you may need to add beneficiaries to your plan because of a birth or adoption. Or, if you need to change how you are treating your beneficiaries, updating your estate plan is essential.
If you do not have an estate plan
After you have asked yourself these questions, you are actually beginning to create your estate plan. You are beginning to create the framework for your plan, and you should work with an attorney to refine these thoughts. Your attorney can walk you through these important considerations and draft your documents, such as the following:
A will is a set of instructions saying how you want your assets to be distributed upon your death, and prevents state laws from governing your estate.
A revocable living trust
A trust allows you to spread out distributions over time to your loved ones and add protection into your estate plan from creditors, predators, and spenders. This grants you incredible financial and values-based flexibility down through the generations.
A living will
If you have to rely on machines to prolong your life, this document expresses your wishes of whether you want these machines to be turned off and for you to be let go.
A durable and medical power of attorney
These documents states who can make financial or medical decisions for you if you are every unable to make them yourself. They also say what kinds of decisions someone can make for you. This prevents the court from becoming involved during your mental incapacity.
2018 is a new year and it is full of opportunity. While you are reviewing and preparing your taxes from 2017, take a few additional steps to address your estate planning needs. As you become organized with your taxes and legal needs, you are setting up a solid foundation to be able to move forward and have an excellent year.