Assessing your assets and goals is groundwork for a good estate plan.

Few people relish estate planning. After all, deciding how you want your assets distributed after you die can serve as an unnerving reminder of your mortality. But there are plenty of reasons to tackle the task with some enthusiasm:

  • – You get to name the people to whom you wish to give your assets and know that your wishes carry the word of law.
  • – You can arrange it so that taxes siphon as little from your pot of gold as possible.
  • – And you have the satisfaction of knowing that your financial affairs are in order and that you’re not bequeathing a costly administrative nightmare to your loved ones.

Your first step? Take stock of all your assets. These include your investments, retirement accounts, insurance policies, real estate, and any business interests.

Next, decide what you want to achieve with those assets and who you want to inherit them. This is also the time to think about people you would trust to handle your business affairs and medical care in the event that you become incapacitated.

Once you decide what kinds of bequests you wish to make, be sure to discuss your plans with your heirs. The sooner and more distinctly you outline your intentions to your family and friends, the less chance there will be for disagreements when you’re gone.

"If you treat your wealth as a hidden kingdom, a box that no one can open until you’re gone, you’re setting your family up for disaster," says Norman Ross, of the Ross Companies, a New York estate-planning and benefits consulting firm.

In creating your estate plan, keep in mind that the laws governing estate planning are not set in stone. In fact, the Tax Relief Act of 2001 made several sweeping changes that are being phased in over a 10-year period. They include:

  • – A gradual increase in the estate tax exemption (i.e., the amount of money you may leave heirs free from federal tax) and the eventual repeal of the estate tax;
  • – A reduction in the estate and gift-tax rates – the top rate will fall as low as 45 percent by 2007, down from 55 percent in 2001;
  • – The gradual repeal of the federal credit for estate taxes paid to a state government; and
  • – A revision in how the tax basis of inherited assets is calculated.

It’s a complex law made more complicated because it sunsets at the end of 2010. Between now and then, Congress may pass other measures that either extend provisions in the Act or eradicate them.

What that means is estate planning has become far more complicated for people with sizeable estates, and having a trusted and competent estate-planning lawyer is essential if you wish to protect as much of your assets from Uncle Sam (and your state tax collector) as possible. Such a lawyer can create legal documents, offer advice, keep your estate plan current with new laws and help administer the disposition of assets.

SOURCE: CNNMoney.com