It's normal to think about estate planning as mostly putting together wills and trusts. A lot more is involved in the process, and it's especially important to set aside money to pay for a variety of expenses. Here are several estate planning issues that will require sufficient funding.
Administration
You'll appoint an executor for the estate, and this person will usually be compensated for their time and efforts. A commonly cited figure is 5% of the total value of the estate, although some bigger estates may use a percentage that drops a bit for every few hundred thousand dollars of value. If you don't set aside money to pay the executor, they can ask the court to take this percentage out of the estate. That has the potential to disrupt the transfer of assets to beneficiaries.
Paperwork
Documents oftentimes have to be sent to courts and beneficiaries. This all involves paperwork, and it may also incur filing fees. Similarly, the executor will have to pay for paper and ink to print the documents. It's a good idea to ballpark the potential costs and add a little more to be on the safe side.
Taxes
There's a good chance you'll owe some amount of local, state, and federal taxes when you pass. If your estate doesn't pay these items, tax agencies have the right in estate law to demand a probate proceeding. A judge will then take a portion of the assets and the money from your accounts to settle your tax bills.
Similarly, beneficiaries might not be well-positioned to pay taxes on what they may inherit. If possible, set aside money to pay the taxes for what's bequeathed to them.
Debts
Another group of folks who can jam up your estate's transfer to the beneficiaries includes your creditors. Debtors can't die out of what they own, and creditors can ask the probate court to make them as whole as possible on what they're owed. It's better to set aside money to settle these debts, as it will ensure all beneficiaries will get what they expect based on the will.
Storage, Cleaning, and Shipping
You probably don't want to send damaged or dirty items to your estate's beneficiaries. This means basic costs need to be paid for storing some items, and they might also have to be cleaned and shipped.
Distributing the Remainder
Once all other expenses are covered, there should be some money left. The executor will conduct an equitable distribution of the balance among the beneficiaries.
