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Estate Planning Strategies by Asset

After you’ve considered the people in your life who will inherit your legacy, the next step is to list your assets and understand how they are passed to beneficiaries.

List what you have

Make a list of your assets; include all financial accounts, real estate, businesses, and valuable possessions. Take into consideration your budget and what you’ll need to live yourself; what is likely to be left over?

Your unique mix of assets will determine the best course of action for each asset type. You’ll have to consider what is part of your taxable estate, what is likely to go through probate (and if you can take action to avoid it), as well as the total value of your taxable estate.

Considering all your assets and the best way to treat each one can be complex; working closely with your attorney or tax advisor is recommended.

Learn about your assets

For each of the major asset types you own, find more details on how they can be handled in an estate and avoid common mistakes.

Investment accounts
Keeping transfer on death designations up to date is the key to passing on investment accounts.

Cash and bank accounts
Although cash may have the advantage of liquidity, it may require extra planning to minimize taxes.

Retirement accounts
Timing and taxation of distributions are especially important when passing on retirement accounts.

Real estate and other valuables
Real estate is a commonly bequeathed asset, which is subject to its own legal restrictions.

Succession planning for businesses
Owning your own business has unique implications for estate planning.

Consider life insurance

Life insurance through an estate plan can be an efficient way to transfer your wealth to your beneficiaries. There are two types of life insurance: temporary life insurance, such as term life insurance; and permanent life insurance, such as whole life insurance or universal life insurance. Term life insurance enables you to protect your dependents for a specific period of time in the event of your premature death by providing resources to cover debt obligations and your lost income. Permanent life insurance covers you for your lifetime. One way to incorporate permanent life insurance into your estate plan is through a properly established irrevocable life insurance trust that allows for the proceeds to transfer to your beneficiaries upon your death without estate taxes. Under current law, both temporary and permanent life insurance proceeds are transferred income tax-free to your beneficiaries.

Permanent life insurance with an irrevocable life insurance trust can be an efficient and effective way to transfer your wealth and leave a legacy to your heirs, while term life insurance can be used to replace lost income in your working years in the event of your premature death. As mentioned previously, working closely with your attorney or tax advisor is recommended.

Next step

Reviewing & updating your estate plan
Keeping your estate plan up to date is just as important as creating it.

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irrevocable life insurance trust (ILIT)

irrevocable trust funded with a life insurance policy and designed to exclude life insurance proceeds from the taxable estate while providing liquidity to the estate and/or the trust's beneficiaries; it generally cannot be changed once it is created

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liquidity

degree to which an asset can be bought or sold quickly or the ability to be otherwise converted to cash quickly

Questions?

1. Estate taxes may apply to insurance proceeds. Consult a financial or tax advisor for your specific financial situation.
2. Guarantees are subject to the claims-paying ability of the issuing insurance company.
The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.
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