6 Reasons You Need an Estate Plan
It’s a common misconception that estate planning is only for people with high worth, but the truth is virtually everyone can benefit from estate planning. An estate plan helps you plan for the future, protect the financial security of your loved ones, and make your wishes and important matters are known. Without an estate plan, important decisions like the type of care you receive if you’re incapacitated, who will care for your children, and who gets your estate can be left to strangers.
Are you still asking yourself, do I need an estate plan? Here are five reasons the answer is a resounding yes.
What Is an Estate Plan?
So, what is estate planning, exactly? An estate plan is merely a collection of legal documents that accomplish many goals such as:
- Specifying how you want your assets distributed
- Identifying a trusted individual to make decisions on your behalf if you are incapacitated
- Minimizing estate, inheritance, and transfer taxes
- Planning for your final arrangements, including a funeral or memorial
- Specifying who will care for your children if you cannot
- Planning for probate
An estate plan can be very simple or very complex depending on your wishes, whether you have young children, and the size of your estate. An estate plan with no children isn’t necessarily less comprehensive than an estate plan with children, though.
#1. Avoid Estate, Inheritance, and Transfer Taxes
Tax planning is an important component of an estate plan. While estate taxes are generally only a concern with high worth estate planning and reduce the amount that heirs will receive, inheritance taxes impact beneficiaries directly as they may be responsible for the cost. Without proper planning, you may be significantly reducing what you leave behind for the people you love or even creating a financial burden.
A good estate plan incorporates many strategies to reduce or avoid these taxes to ensure your assets go into the hands of your loved ones, not the government.
#2. Avoid Probate
Probate is a legal process in which a court supervises the administration and distribution of your estate. Many types of assets must go through the probate process which can be time-consuming and expensive. With careful estate planning, you can avoid the probate process and make sure heirs get their inheritance as soon as possible. Remember: a will alone is not enough to avoid probate.
Here’s why it’s so beneficial to consult with an estate planning lawyer to avoid probate:
- Probate is a public court proceeding that makes your family’s finances and property public knowledge.
- During probate, the representative is required to notify creditors so they can make claims against the estate.
- Probate is court-supervised and requires court approval at many steps with specific rules that must be followed.
- Probate can lead to very high attorney’s fees that may cost thousands — even for a moderate estate.
- Probate leads to long delays in administering and distributing assets. It may take 6 to 12 months before beneficiaries receive their inheritance.
#3. Designate Beneficiaries for Your Assets
One of the most important estate planning basics is deciding where your assets will go when you’re gone. There are four pathways your assets can take:
- Assets held with another person like a spouse can go directly to them as long as they’re titled properly
- Assets in accounts that have a designated beneficiary can go directly to them
- Assets held in a trust are distributed directly according to the trust documents
- Other assets must pass through probate, as explained above
Estate planning involves designating beneficiaries and titling assets to make sure they go to your heirs faster and to manage or avoid probate. Depending on your goals, your estate plan may also involve a trust to bypass probate for certain assets.
Because asset titles generally take precedence over even trusts and wills, the estate planning process will ensure your assets are titled in a way that passes your assets to your chosen heirs as efficiently as possible.
#4. Establish Care for Minor Children
Who will care for your children if something happens to you? Without a surviving spouse and estate plan, the probate court will appoint a guardian for your children. Along with naming someone you trust to act as a guardian for your children in the event of your death, a good estate plan can also be used to restrict your child’s access to their inheritance if they are young or aren’t yet ready to make financial decisions. You can name a trusted person to act as a trustee to ensure money is used for your child’s best interests and decide at which age your child can take over.
#5. Indicate Your Health Care Wishes
While it’s probably the last thing you want to think about, what happens if you become seriously ill, injured, or otherwise incapacitated? With an advance directive and medical power of attorney (POA), you can make your wishes known about the type of care you do and do not want to receive if you aren’t able to direct your own medical care.
If you are married, your spouse will have the right to make medical decisions for you, but an advance directive allows you to guide the care you receive. If you aren’t married, you can designate someone you trust, including a partner that isn’t a legal spouse and would otherwise be unable to step in.
#6. Manage Final Arrangements
Your family may not know much about your funeral wishes. Even if they have some idea, the last thing they should worry about while grieving is making decisions that are emotionally and financially difficult.
By planning your final arrangements ahead of time, you can give your loved ones the space they need to grieve and even reduce the cost of the funeral expenses.
Want to know how to prepare an estate plan and get started? An experienced estate planning attorney can help you through every step of the process by taking inventory of your assets and debts, crafting a strong estate plan tailored to your goals, and putting this plan into action. Remember: a good estate plan doesn’t just protect your loved ones when you’re gone; it can also ensure your wishes are followed if you aren’t able to make decisions while alive.
Contact Sheryll Law today to learn more about estate planning basics and begin drafting the comprehensive plan you need with a focus on one-on-one attention.