Most people believe estate planning is for the wealthy, but a proper estate plan is actually crucial for most families. Without a comprehensive plan, you risk leaving your loved ones with a mountain of legal and financial trouble.
Your estate includes all your possessions, including your home, life insurance, checking and savings accounts. A will allows you to define how your possessions should be distributed and who should care for your children.
Protect Your Assets
You might think of “estate” as a word reserved for people who own huge estates, but the truth is that anyone can benefit from estate planning. An estate includes all the possessions you own, including real property, cars, cash, investments, life insurance, furniture, and even checking and savings accounts. With a formal plan in place, you can ensure that your assets go to the right people and avoid costly legal complications.
A formal estate plan consists of multiple documents that help you to make your wishes known should the unexpected happen. It defines how you want your possessions distributed, who should care for children or dependents, and even pets. It also specifies who should make decisions if you cannot speak for yourself. The process also helps to minimize taxes, so more of your wealth goes to your loved ones.
The most important reason to make an estate plan is to protect your family. In the absence of a written document, the courts will decide what happens to your property, and the family members left behind will have to struggle through a lengthy probate process. In some cases, the process could cost thousands of dollars in attorney fees.
You might also have family issues that need to be addressed, such as a disagreement about who should take care of your young children or a desire to disinherit certain relatives. The process of determining these things is often complex and emotional. Without a document in place, the court may appoint someone you might not have wanted to make those decisions.
Lastly, you might wish to give a portion of your wealth to charity and make a difference beyond your lifetime. This is a big part of estate planning and can be accomplished with tools like charitable trusts, limited liability companies, and foundations. A skilled estate planner can help you find the most effective way to give back.
Protect Your Children
As you get older, the possibility of death and what happens after your death becomes much more real. This is especially true if you have children. If you don’t write your wishes, the courts could decide who should raise your children or manage your finances. They may give this responsibility to a complete stranger. Even if you have no children, you have family members that you want to care for your property and affairs after your death or incapacity.
Estate planning can help you give this responsibility to your loved ones instead of a stranger. In addition to creating a trust for your children, you can establish powers of attorney that give someone legal authority to manage your finances and personal affairs should you become incapacitated. Without this step, the court could appoint a guardian and have the power to remove your children from your home. This is a horrible outcome and something that you can avoid with a well-prepared plan.
Another aspect of estate planning that many people don’t consider is creditor protection for their children. While you may think your children are responsible with their money and would not spend it foolishly, you never know what the future holds. In the worst-case scenario, if your child gets into an accident and is sued, they could lose their inheritance. However, if you set up a trust, your child’s inheritance will be protected from their creditors.
If you remarry, an estate plan can protect your children and your new spouse. Many couples struggle to balance their current spouse’s needs with their children’s needs from a previous relationship. With a good estate plan, you can provide for all of your loved ones in the most beneficial way for your family.
A comprehensive estate plan should also include a list of all your assets. This allows your family to easily locate information and documents as they settle your estate. It also gives them a chance to correct titles and beneficiary designations before they are out of date or otherwise invalid. Doing so can save your family time, stress, and money in the long run.
Stop Fights Before They Start
We all hear horror stories of family members fighting over money. It may not seem like the ideal way to go, but it can be avoided with solid estate planning. A financial advisor can help you set up a trust to distribute your assets according to your wishes and minimize taxes.
Many people don’t realize that a family’s “estate” can include much more than a home or bank account. An estate can also include life insurance policies, retirement accounts, investments, and personal possessions. Unless you’re very wealthy, the estate of any normal person will require some form of planning, especially for those with young children.
Without an estate plan, the courts will determine how your property is distributed after you die, and it could not be the way that you would want it to be. This is because the state has its own laws on how to distribute your assets, and these laws may not be in line with your family’s needs. In addition, the probate process can be time-consuming, costly, and stressful.
An estate plan will also minimize taxes for your heirs. This is because the plan will designate how to transfer your assets between accounts so that inheritance taxes do not impact them. This can save your heirs substantial money that could otherwise be lost to Uncle Sam.
In addition, your estate plan can include special needs trusts for disabled heirs and contingent trusts that only allow distribution when certain conditions are met. These can be helpful in protecting your children’s inheritance while ensuring they will have enough to live comfortably.
While estate planning is not as fun as planning a vacation or choosing where to eat dinner, it is important for anyone with assets. A financial advisor can help you establish a plan that will protect what you’ve worked so hard for and ensure your family is taken care of when you are gone.
If you’re ready to start planning your estate, SmartAsset’s free tool matches you with financial advisors who serve your area. You can interview your advisor match at no cost to decide if they are right for you.
Protect Adult Beneficiaries
A thorough estate plan will account for many situations that can occur after a person’s death. For example, a trust can be established to protect assets from creditors. Also, a beneficiary who is a recipient of public benefits can be included in an estate planning structure that will allow them to maintain those benefits. In addition, blended families or stepchildren can create complications that can be addressed with a well-thought-out estate plan. An attorney can help a family with these situations, setting up a trust that will benefit each of the individuals involved in the situation while still allowing everyone to receive what they deserve.
If a person dies without a will, the state law of intestate succession will govern how that individual’s estate is distributed. This can result in a legal battle between family members over who should be in charge of their finances and assets. A proper estate plan can prevent these battles from taking place by naming who will have control of assets and how those assets should be distributed.
An estate plan should include a will and other important documents, such as a financial power of attorney that names someone who can make financial decisions for you and a health care proxy or living will that outlines your wishes should you become incapacitated. If these documents are not in place, it is possible that your loved ones could be forced to go through court proceedings to determine who makes medical decisions on your behalf.
While it may seem difficult to think about, preparing an estate plan is one of the best things you can do for your family. It can help protect your assets, minimize tax expenses, and simplify and speed up the transfer of wealth to your loved ones. Estate planning is crucial for all people, regardless of age or wealth, so be sure to meet with an experienced estate planning lawyer and discuss your needs. The result will be peace of mind for you and your family. Then, when the time comes, your family will be able to focus on celebrating your life and legacy instead of fighting over it.