Estate planning involves preparing a written account of how you want your assets distributed when you pass away. It lets you put your wishes down, select who you want handling your affairs, and what people/organizations get what from your property, savings, or belongings. It’s similar to a last will and testament, but as you’ll find later in this article, they’re not the same.
Perhaps because of the term “estate”, there’s a common misconception that estate planning is reserved for the ultra-wealthy; people who have brownstones, yachts, and corporations to bequeath their children and beneficiaries. But nothing could be farther from the truth. In this context, estate simply means everything you own, from your house to cars, bank accounts, life insurance and so on.
As long as you have assets (a house, vehicles, or some cash) and there are people you’d love to inherit these assets, then you need estate planning. Here are 5 reasons why you need to start planning now:
1. Save your loved ones time and money
People who pass away without leaving a legally backed document on how they want their assets distributed leave their loved ones at the mercy of the courts and strangers. Here’s what happens: the estate goes into probate, and a judge appoints a representative to share the property. If there’s a living spouse, this job falls to them. Otherwise, a public trustee gets to determine who gets the house, car, life insurance, etc.
But that’s not the worst part. This is: while in probate, no one can touch the assets and the accounts are frozen until the courts are done. This may take anything from 12 months to 5 years, depending on a number of factors. Now, during this process, the lawyers working on the probate will get paid from the estate.
So, loved ones can’t touch the money for months, maybe years. And the size of the whole thing shrinks every month. Then at the end, a stranger may be the one deciding how to share assets the decedent worked years to accrue.
2. Go beyond the power of a will and testament
A will is a legal document that outlines where your assets go after you pass, along with who you entrust to execute your last wishes, and information about a guardian for your kids, if you have any. Leaving a will means you help your loved ones avoid the torturous process of probate courts. It’s an important part of any estate plan, however, it only covers the basics. There’s nothing about financial power of attorney, a healthcare proxy, advance directives, or trusts.
That means you’ve not appointed someone to take financial decisions on your behalf in case you become incapactiated, and there are no directives about what medical procedures you want to avoid. In truth, it’s unlikely you’d ever need the aforementioned, but one thing you’ll surely need is the protection a trust offers your beneficiaries from estate taxes. And you can’t get that with a last will and testament; only an estate plan will suffice.
3. Reduce the tax burden on your beneficiaries
When it comes to estate taxes, people who don’t have assets exceeding $12.06 million ($24.12 million for couples) don’t need to worry about federal estate taxes. What most people need to worry about though, are state estate/inheritance taxes. If your assets meet the threshold, your beneficiaries may be looking at up to 18% in deductions.
Thankfully, with an estate plan, you can make legal arrangements that ensure your property and savings pass on to your loved ones without losing a chunk to the government. You may set up trusts, establish a joint account, or even distribute irrevocable gifts.
4. Protect your interests even while alive
Another benefit of an estate plan is that it lets you leverage a durable power of attorney as well as appoint a healthcare proxy. The former empowers you to name someone who will take care of your legal and financial matters if you’re temporarily (or permanently) unable to do so.
And the latter gives a trusted family member or friend the authority to make medical decisions for you when you can’t. Of course, we all believe it’ll never come to this and we hope to never need a healthcare proxy. But as the popular saying goes, “it’s better to have it and not need it, than need it and not have it.”
5. Leave something for the charitable organizations that matter to you
If you have charities and foundations that focus on the causes that are close to your heart, it’s safe to assume you’d want to leave them something from your estate. Perhaps your philanthropic pursuits include contributing towards shelter for the homeless, caring for stray cats and dogs, or protecting endangered species. An estate plan lets you leave instructions and send some of your assets to these charities.
Estate planning is something that no one wants to think about, or take an action on. But it affects assets you’ve spent years working to put together. No one else deserves to have a final word on how they are distributed. And after you pass away, your beneficiaries deserve the peace and protection that only an estate plan can provide. If you’re thinking about starting the process or getting more information about how to put together an estate plan, schedule a quick (and FREE) consultation with me and let’s discuss.