If you have assets such as real estate you wish to pass on to your surviving spouse, children, or other heirs, the question “What is estate planning?” matters to you. It is also essential if you have specific wishes when it comes to your health care decisions. Learn more about it today.
In this article:
- What Is Estate Planning?
- Who Needs an Estate Plan?
- Why Is Estate Planning So Critical?
- The Complexity of Estate Planning
What Is Estate Planning | How to Make the Most of Your Assets Even after Death
What Is Estate Planning?
Essentially, estate planning is planning how to manage your financial affairs, particularly when you can no longer make sound decisions or when you pass away. It is also a significant part of retirement planning.
The primary aspect of this is planning your estate, which essentially comprises of the assets you own upon death.
With the help of a planning attorney, an estate plan can tackle the following:
- Guardianship of minor children
- Provision for family members who have special needs
- Estate planning documents outlining instructions pertaining to possible long-term care and assignment of a person who can act as a health care proxy
- Strategies to minimize the taxes and legal fees on your estate, which is a huge benefit
- Division or distribution of your property and assets
- Beneficiary designations
- Assignment of a trustee and/or executor
Because many things in life are constantly changing, the estate planning process helps to mirror this with flexibility.
Who Needs an Estate Plan?
Once upon a time, the question of “What is estate planning?” was important to only the wealthy. Today, more people realize this is not true.
No one really wants to think about how the world will go on when they are no longer a part of it. However, for the sake of your family, it is something you must do.
Life is unpredictable. It would be nice if you could know what lies ahead, but no one does. You are not guaranteed tomorrow. An estate plan helps to answer this key question: “How will my family manage without me here?”
Think of all the things you provide for your family:
- Emotional support
- Handyman or homemaking skills
- Your part of the household responsibilities
- Your part of the parenting responsibilities
Consider the added expenses and strain on a budget finding someone to help with things like carpool duty, homework help, home care, children’s care, etc. can be. The list never ends.
Estate planning helps to ease the financial burden on the people left behind with assets, such as life insurance policies, trust funds, bank accounts, and retirement accounts. You can even create a living trust now. You can manage your assets and designate one or more beneficiaries to that trust upon your death.
Why Is Estate Planning So Critical?
Not only does estate planning provide a path for your loved ones upon your death and financial means to help them adjust living without you, but it also offers other important financial and personal benefits you should consider.
If you do not have an estate plan in place, the state determines how your assets will be distributed rather than you. Your spouse may not receive enough to live on. If you are not married, in many states, your partner may receive nothing of your estate.
If you have minor children, the courts, rather than you, will control their inheritance and even appoint a guardian without your knowledge, approval, or consent.
Estate planning provides a roadmap for the courts to follow. If you have set out your wishes, in writing, with a proper estate plan, the courts are bound to follow that directive.
There are also substantial tax benefits for having an estate plan. Creating irrevocable trusts for your beneficiaries (and they must be irrevocable) can practically eliminate estate taxes on the money you leave to them. You can even use it to protect a portion of your assets from estate taxes, which can be steep.
The Complexity of Estate Planning
Estate planning is not something you should attempt on your own. It is a complex process with various regulations, tax requirements, and other complexities involved. Work with your financial planner and a trusted attorney to make sure you have all your needs covered without neglecting vital details that could profoundly affect the family you leave behind.
Part of being financially aware and responsible means having a plan set in place for even (and possibly especially) the unwanted circumstances life throws at you. For the sake of your families, getting your estate planning in order should be something you are prepared for.
What do you think are the other benefits of estate planning? Let us know in the comments section below.