Estate planning is one important step to caring for your loved ones after your incapacity or death.
I have heard many excuses over my career as an estate planning attorney.
Many people think estate planning is only for the super wealthy.
Others believe it is only important if they are married or have children.
These are common but costly misconceptions.
According to a recent Business Insider article titled “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan,” there are many important reasons for every adult to have an estate plan.
What are they?
Estate planning involves more than a will.
Although a last will and testament is certainly foundational to an estate plan, this document alone is insufficient to protect you and your loved ones.
Estate planning does not merely address distribution of assets, it also involves incapacity planning.
What would happen if you were alive but no longer able to make your own financial or medical decisions?
If you do not have a general durable power of attorney or medical directives, you and your loved ones will be in a tough place.
Your loved ones will need to petition the courts to have access to your accounts and medical records to act on your behalf.
This will be a time consuming and costly process.
In addition to a last will and testament, some family dynamics and financial situations are better addressed by incorporating a revocable living trust into your estate planning.
Like a last will and testament, a revocable living trust allows you to distribute assets; however, it provides greater control and privacy by bypassing probate.
Estate planning reduces stress.
Although creating an estate plan may seem like just another demand on your time, it is far better to prioritize it now.
If you die without an estate plan, a court will need to select a public administrator to settle your estate according to the laws of the state.
While this is happening, your assets are frozen.
No one can access them.
There will be a lot of paperwork and hefty legal fees.
If you create a last will and testament, you can nominate your own executor and provide instructions regarding who inherits what.
This is a far better plan than leaving your affairs up to the government.
Estate planning encompasses retirement plans.
Retirement accounts and many other investment accounts pass through beneficiary designations.
This means the asset becomes the property of your designated beneficiary on the account after you die.
If you have not updated these, your ex-spouse may enjoy all the fruits of your labor while you disinherit your current spouse or your children.
If you have no beneficiary or the beneficiary you named predeceases you, then these accounts will be included in your estate and pass through probate.
This can have significant tax implications for your heirs.
Estate planning considers taxes.
Currently, the federal estate tax only applies to those with significant wealth.
Under new leadership, the government will likely lower the threshold significantly.
Depending on your state of residence, you also may need to account for state inheritance and estate taxes with lower thresholds than those for the federal estate tax.
Tax planning is imperative to maximize the amount of inheritance your heirs receive.
Estate planning protects minor children.
If you are young and healthy, you likely do not expect to die soon.
Unfortunately, it is possible for both parents to die and leave the children orphaned.
If this happens with no estate plan in place, the courts will decide who raises your children.
They may select a family member who lives far away or who has distinctly different values from you and your spouse.
In the worst scenario, no family may be available and your children may become wards of the state and sent to a foster home.
Estate planning designates who manages assets for minors.
You may choose the same person to steward the inheritance or proceeds of your life insurance policy for your children and to rear your children to adulthood.
This is not always the case.
Oftentimes people separate the financial and parenting roles.
It is also wise to name alternatives in case your first choice is incapable of serving.
Estate planning certainly touches most aspects of life.
After you have created your estate plan with the help of an experienced estate planning attorney, you should review and update it every few years as changes inevitably occur that impact your planning.
Reference: Business Insider (Jan. 14, 2021) “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan”