You don’t have to be wealthy to benefit from estate planning. There’s a common misconception that only those with literal “estates” need an estate plan, but in reality, everyone should have one.
Why? Because your possessions are all that make up your estate from a financial and legal standpoint.
Real property is only one part of your estate. Assets like cars, investments, bank accounts, life insurance, furniture, and personal belongings also count.
Who will inherit your possessions if you die? Do you want a say over what happens to your property after you die?
Even though estate planning isn’t exciting, it’s important to ensure you can take care of your loved ones after you die.
In this article, we will:
Let’s dive right in.
What happens to your assets after you die is the central issue in estate planning. It’s a catch-all word for various legal documents that can specify your wishes in the event of your incapacity or death.
But estate planning is more than deciding who gets what after you die. It can also involve decisions about your children and their possessions, how to avoid probate, your taxes, your health care, and what happens to your remains after you die.
Making sure your possessions go to the people you want them to (and not others) is a primary goal of estate planning, as is reducing the amount of money your heirs have to pay in taxes to inherit your fortune.
Still, a clear estate plan can also lessen family tensions and provide specific instructions for your medical care in the event of your incapacity before your death.
People put off estate planning for a variety of reasons:
Then, when tragedy strikes, their loved ones have to deal with the aftermath. It's unfair to force them to cope with your financial matters after you’re gone.
If you do not have a will or other estate planning documents in place, state law will dictate who gets your property, and the court will decide the custody of your children.
Your assets may sit in a state of limbo for years.
Your top priority in life will always be your family, and that will never change, even after you die. Creating an estate plan while you’re still capable is the best approach to guarantee their well-being following your death.
Here are some benefits of estate planning:
As mentioned earlier, the government may step in and decide how your assets are distributed in the absence of a will or trust. This means that your immediate family may be passed over in favor of a friend or other non-relative in the distribution of assets.
That’s why it is crucial to prepare a comprehensive estate plan to ensure that your assets go to the people you intend them for.
Disputes over the distribution of an estate’s assets can drag out the process without a will or other estate planning document.
'For this reason, it is vital to prepare in advance to ensure a smooth transfer of properties to heirs.
In case you are still alive but incapacitated because of an illness or accident, estate planning can help determine who will administer and own your assets.
Though no one plans on dying at a young age, parents of young children should always be ready for the worst. You should appoint guardians for your children in case both you and your spouse die before they reach adulthood.
By doing so, you can choose the care you want to be provided for them. If you don’t name any designated guardians in your will, the court system will make that decision.
In addition, it can protect beneficiaries from accusations of theft made by family members. Besides, a living will spares your heirs the pain of making some final medical decisions on your behalf.
With preparation, you can ensure that as much of your estate as possible goes to your heirs rather than the government.
You can reduce the financial impact of taxes on your heirs by employing tax planning techniques, including:
Even if your family gets along great, you should still make an estate plan to ensure things stay that way when you pass. Some family members may get angry about the idea of a money grab, while others may try to hide a cherished heirloom, hoping that no one would find it.
Even if you don’t have a lot of money, it’s still a good idea to do some estate planning, so that your loved ones don’t fight amongst themselves.
Everyone, regardless of age, should at least think about putting together some fundamental estate planning documents. If you do so, your loved ones won’t have to worry much about the future if something happens to you.
The following legal documents are the foundation of any solid estate plan:
Making a will or other estate plan is like making a commitment to your physical health. We’re all aware that we need to take action, but few of us ever do since the idea of taking the first step is too intimidating.
To help you out, we’ve compiled a list of the most crucial steps when preparing your estate plan:
Make a detailed inventory of your possessions and estimate their total value. Include everything from:
Not all property goes through probate, so you may be unable to leave everything to your heirs through a will. Beneficiaries may already be named on various documents and accounts, such as life insurance policies and retirement plans.
But, if you want to leave particular properties to certain people, specify that in your will. You should also determine contingent beneficiaries if there is a chance.
Remember that beneficiary designations only take effect after your death, so if you lose mental capacity and can’t decide for yourself, you need to have other plans made.
Determine who will act as executor of your estate after you’ve decided how to distribute your property. After your death, they will be in charge of dividing up your assets.
When establishing a trust, it is necessary to select a trustee. It’s essential that the person you choose as your representative is reliable, organized, takes responsibility seriously, and has empathy for your situation.
Your estate planning documents should include a will, durable power of attorney, and living will, at the very least. You should also name a guardian for your young children or pets in your will, if applicable.
If you want to ensure that someone you trust will be in charge of your financial and medical decisions in the event of your incapacitation, it may be wise to prepare a power of attorney.
The estate tax is something to consider if you’re fortunate enough to have a sizable estate. It is important to remember that the valuation of your estate for estate tax purposes may include assets that are distributed to beneficiaries outside of probate.
Life insurance is a good idea for anybody, but it is especially important for parents of young children.
If you have large estate taxes or debt that you believe your heirs will have to pay, life insurance may be a good financial precaution. This would help guarantee that your loved ones don’t lose out on any of your assets because of your financial obligations.
Arranging your own funeral in advance might help ease the financial burden on your loved ones after your passing. You can prepay your funeral expenses or set up a bank account that will be accessed automatically upon your death.
Don’t forget to state how you would like your remains dealt with after death, whether burial or cremation. Donating your organs and body after death is another option to consider in your final wishes.
If you and others share business ownership, you will need a buyout agreement. But, you’ll need a succession plan if you are the sole proprietor.
After taking the time to draft a will and other estate planning documents, store them somewhere secure and let your executor or agent know where to locate them if necessary.
Creating a will and naming beneficiaries is only the beginning. You still need to check in on your plan from time to time to ensure it still fits your wishes.
You should revisit your estate plan once every five years or whenever there is a big change in your life or the lives of your beneficiaries or heirs, including:
No one likes to confront the idea of dying or losing the capacity to make choices for themselves. That’s why so many families are unprepared when tragedy strikes.
For this reason, start your estate plan as early as possible. As with any good plan, you can set things up first and then adjust them later.
With a clear plan that includes your final wishes and protects your loved ones, you can rest easy. You can show your loved ones how much you care by taking the time to prepare for their future through an estate plan.