The notion of estate planning can seem overwhelming, but creating a plan is vital to ensuring your money and assets go to your intended heirs without getting hit with maximum taxes. Read on for tips to keep your estate safe for intended heirs.

Draft a Will

Creating a will is one of the most essential and basic estate planning methods that allows individuals to determine how their assets will be divided after their death. If you don’t have a will, your estate—which includes everything you own—will be divided in probate court. This is a lengthy and expensive process where a judge, acting in accordance to state laws, will decide how the assets are split up. Take note that even with an established will, your heirs will need to go through court to review the will and confirm its validity.

Name Your Beneficiaries

One way to skip the probate process is to name specific beneficiaries for bank accounts, retirement plans, and life insurance policies. Some accounts allow transfer-on-death (TOD) provisions, which is a simple and straightforward way to pass assets to heirs. And some states allow beneficiary deeds, which authorize property to be automatically transferred to a new owner when the present owner dies. Just be sure to review beneficiary information upon major life changes (i.e., marriage or the birth of a child) because beneficiary or TOD specification takes precedence over a will.

Create a Trust

If your goal is to keep your assets in the family but worry about how the beneficiaries will utilize the funds, it may be wise to create a trust. In setting up a trust, you will appoint a trustee who administers the funds according to the terms you’ve specified in the document. The trustee will have authority to make sure the heirs follow the stipulations if they want to receive the funds. Trusts can be set established in several ways, but two of the most common trusts are:

• Revocable living trust. You can designate portions of your estate to go toward certain things while you’re alive. Unlike an irrevocable trust (below), you can modify the trust after it’s created. If you become ill or incapacitated, your appointed trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries.
• Irrevocable trust. You cannot modify the trust after it’s created, but irrevocable trusts offer tax shelters that revocable trusts do not.

Switch from Traditional Retirement Accounts to Roth Accounts

Individuals with traditional 401(k) or IRA accounts could unwittingly pass a big tax bill to their heirs. Regular income tax must be paid on distributions from all traditional retirement accounts, and all heirs other than spouses are required to withdraw all money from an account within 10 years. A large account balance could necessitate substantial distributions that may be taxed at a higher rate. By converting traditional accounts to Roth accounts, you could considerably lessen the tax burden for heirs. While the converted amount is subject to regular income taxes, all withdrawals are tax free.

Gift Your Money While You’re Still Living

The IRS authorizes gifts up to $15,000 per person per year. If you take advantage of this, the act of gifting can bring the value of your estate down, and the money is tax-free for the beneficiaries. A note of caution is to hold onto any assets that appreciate in value—assets like stocks and a house. The taxable amount of such assets is adjusted upon the death of the owner, so it may be beneficial to transfer these assets after death.