There is a common misconception that only wealthy people need to consider estate planning. Unfortunately, this misconception often results in high unnecessary costs to the estate and extra burdens for your loved ones.
Almost every individual can benefit from the development of an estate plan. For the rich or middle class, young or old, an estate plan can help reduce the taxes and expenses of an estate; it simplifies and speeds up the transfer of assets to the next generation and help ensure that your loved ones are protected.
WHAT IS ESTATE PLANNING?
An estate plan is a collection of legal paperwork that sets down how you want your assets divided when you die and how you want people to manage health and financial choices if you cannot do so during your lifetime.
A thorough estate plan may provide you peace of mind about your future, knowing that your loved ones will be protected and that the legacy you leave behind will be the one you choose. In addition, a comprehensive estate plan can help you save money on taxes and probate fees and give your family less to worry about after you pass away; yet, failing to plan for your estate might cause unforeseen problems for your heirs.
Here we’ll go over some of the documents that are essential for estate planning:
Most estate plans include a will as a regular document. The will appoints an executor, also known as a personal representative, to oversee the transfer of your assets according to your wishes. Your will can also name guardians for young children, who will be in charge of their custody and care until they reach maturity.
While you are alive, a revocable trust holds and manages your assets for your benefit, and it names the people who will inherit the property when you die. These trusts can also assist with incapacity planning. They are also used to simplify probate in some states. While the living trust has its benefits, some issues (such as funeral wishes) can only be addressed through a will.
PERSONAL PROPERTY MEMORANDUM:
This document allows you to gift tangible personal property items such as furniture, jewelry, artwork, and other items not covered by your will (depending on the state in which you live). The personal property memorandum is less formal than a will and can be modified at any time.
DURABLE POWER OF ATTORNEY:
This agreement appoints a trusted family member, friend, or adviser as your agent to handle financial and legal affairs on your behalf.
HEALTHCARE PROXY, AGENT, OR POWER OF ATTORNEY:
This paper appoints someone you trust to make medical choices for you if you cannot do so yourself and provides that person with automatic access to your medical records — however, certain institutions may require additional documents for complete access to medical information.
While having the proper paperwork in place is important, estate planning entails much more. Depending on the complexity of your estate, having a team of financial, tax, and legal experts to guide you through the process and give advice tailored to your unique situation may be very beneficial.
WHY ESTATE PLANNING IS IMPORTANT
Here are some of the significant reasons why estate planning is essential and how it benefits you and your loved ones.
ESTATE PLANNING PROTECTS YOUNG CHILDREN
Nobody plans on dying early, but you should be prepared for the worst if you have young children. This is where a will comes into play in an estate strategy.
You should appoint guardians for your children if both parents die before they reach the age of 18. This will guarantee that they are cared for in a manner that you approve of. If you don’t specify these guardians in your will, the courts will decide who will raise your children.
ESTATE PLANNING PROTECTS BENEFICIARIES
Estate planning was formerly seen to be something only the wealthy required, but now that has changed. Nowadays, many middle-class families must prepare for the event that the family’s breadwinner dies (or breadwinners). After all, you don’t have to be extremely wealthy to succeed in the stock market or in real estate, both of which produce assets that you’ll want to leave to your heirs.
Even if you are leaving behind a second house, you will not control what happens to it if you do not select who gets it when you die.
That is because the critical part of estate planning is naming successors for your assets, whether they are a vacation house or a stock portfolio. If you do not have an estate plan in place, the courts will usually decide who receives your assets, which may take years, cost much money, and be very unpleasant. After all, a court has no way of knowing which sibling is to blame and should not have unrestricted access to money. The courts will not immediately award everything to the surviving spouse.
ESTATE PLANNING AVOIDS BIG TAXES
The goal of estate planning is to protect your loved ones, including protecting them from the Internal Revenue Service (IRS). Transferring assets to heirs to minimize their tax burden is an integral part of estate planning.
Even just a bit of estate planning may help couples save a significant amount, if not all, of their federal and state estate taxes and inheritance taxes. There are additional ways to reduce the amount of income tax that beneficiaries may be required to pay. Without a plan, your heirs may owe Uncle Sam much money.
ESTATE PLANNING ELIMINATES FAMILY MESSES
We have all heard the tales of terror. When someone with money passes away, a family war begins between the siblings. One sibling may believe they are entitled to more than the other, or one sibling may think they should be in charge of the money despite a debt history. Family members may be pitted against one another in court as a result of such bickering.
Another reason for having an estate plan is to avoid disputes among family members before they start. This will let you pick who will manage your finances and assets if you become mentally incompetent or die, which will go a long way toward preventing family discord and ensuring that your assets are managed as you planned.
You’ll need an estate plan if you want your assets and loved ones to be protected when you can no longer do so. Your heirs may suffer significant tax costs if you do not have one, and the courts may decide how your assets are divided—including who gets to raise your children.