Why estate planning matters (no matter how old you are)

There are two things we’re all about here at Our Bill Pickle: keeping it real and sharing this space with those who can provide perspective on financial matters outside our areas of expertise.

Today, Catherine K. Burke from Online Payday Loan Consolidation is here with a guest post sharing how her friend, Alice, benefitted from a family member’s decision to be smart about estate planning.

If estate planning is something you’ve been thinking about — or, if you’re like me, putting off — this is the post for you.

(Interested in guest posting at Our Bill Pickle? Click here for more details!)

How estate planning made a difference for my friend, Alice

Do you want to die with money in the bank? The question itself is not a pleasing one. However, we have to accept death is a reality we’ll all face someday. 

There is good news, though: it is entirely your decision. 

You can live your life to the fullest and enjoy the money you’ve earned. Or you can leave it behind for others to inherit. I think the best option is to do a bit of both since none of us know when we’ll die. 

I also think that we should prepare ourselves financially to have financial independence until the last day of our life. 

Let me share with you about what happened after the death of my friend Alice’s uncle, Mr. Alexander Williams. Alice was the successor of his property. 

Estate planning: What Alexander Williams left his niece, Alice

Alexander Williams didn’t marry. He loved Alice a lot and always told her she would inherit everything. 

Alice visited her uncle often and both of them enjoyed it. Mr. Williams enjoyed his life, but also made sure to leave some money in the bank for Alice. 

After his death, Alice asked me for my help to inherit the money left behind. 

One of the bank accounts had a mention as POD (Payable On Death) beneficiary in Alice’s name. In this case, what happens is the beneficiary shows the death certificate, submits identification documents, and claims the money in the bank. Alice’s uncle had filled the beneficiary designation form and it was there in the banks documents. So, the money got transferred pretty quickly. 

Alice’s uncle was clever enough to have accounts with the right of survivorship. That meant Alice was supposed to acquire the money after her uncle’s death. So, Alice automatically became the surviving owner of the remaining funds. 

Alice had planned the funeral according to her uncle’s wishes. She invited her uncle’s friends and made all the arrangements. We knew her uncle. So, some of us, her friends, were also present. 

To inherit the property, Alice had to submit certain documents showing the proof of death along with proving the inheritance. Some of the documents required are a copy of the death certificate, a copy of the succession certificate, and a copy of the probate of letter of administration.

What did Alice do with her inheritance?

Now, it will be an obvious question in your mind: what did Alice do with the money? 

Actually, it helped her a lot. At that time, Alice was a stressed about debts. Normally, she is the kind of person who can handle debts quite efficiently. But, due to a financial emergency, she was in urgent need of money. That’s why we always stress the importance of an emergency fund. She didn’t have that. Without consulting anyone, she resorted to taking out  payday loans. In a couple of months, the amount became quite a bit and she opted for payday loan debt consolidation.

However, at that point, she inherited the money and that helped Alice clear her debts! 

Mr. Williams used to donate a lot of money to the charity, so, Alice followed his footsteps. Alice donated a lump sum amount to the charities, as per her uncle’s wish. 

Isn’t it a great satisfaction when you have the money to help others to enjoy life? It makes you happy in a true sense.  Moreover, you can also get tax benefits when you donate to qualified charities. You can get the benefit if you opt for an itemized tax deduction. 

One thing many of you might be wondering is whether or not you have to pay any tax on the inheritance. There can be three types of taxes – capital gains tax, inheritance tax, and estate tax. 

In the United States, the federal government usually doesn’t impose any federal tax on the inherited property. 

However, the IRS considers capital gains tax. You’d have to pay a tax if you sell a property and earn a profit. 

The inherited property also doesn’t come under income tax since it’s not considered to be the beneficiary’s income.  However, you may have to pay inheritance tax if you belong to Kentucky, Iowa, Nebraska, Pennsylvania, Maryland, and New Jersey. 

It is also worth noting that Alice was the beneficiary of the inherited IRA or the beneficiary IRA account. So, the assets of her uncle’s IRA account was transferred into the new inherited IRA in Alice’s name. 

The advantage of such an account is that the amount will grow tax-deferred and Alice can withdraw it without paying a penalty. However, she’ll have to withdraw required minimum distributions at specified times. 

Final Thoughts

So, it can be said that Alice’s uncle had good knowledge about how to manage his finances. I often notice Alice follows his footsteps and handles financial matters quite efficiently.   

This story, to me, also drives home the importance of estate planning — regardless of your age. Choose your beneficiary and do the proper documentation so your heirs don’t face any hassle to inherit the property. Another thing you can do is plan your funeral yourself and, if required, buy a funeral insurance policy. It’s the best thing you can do to protect both your inheritors — and your legacy.

Catherine k. Burke loves to write about the financial problems of life. She faced a financial hardship in her earlier days with her payday loan debts. It made her life full of stress. Today, she motivates people to face the difficult situation positively to get a better outcome.