You already have an estate, whether you realize it not. Actually, almost everyone does. Your estate is made up of all that you own, including personal possessions, furniture, insurance plans, investments, bank accounts, your home, and your car. No matter how modest or extravagant, these items are your estate and will no longer belong to you once you pass.
What does Estate Planning Involve?
Estate planning means anticipating how your estate will be managed and distributed during your life and after death. This plan will minimize estate, gift, and income taxes on these assets. People choose to create an estate plan because it allows them to control how these assets are distributed to the organizations and people they care about most.
In order to ensure that these wishes are granted as you see fit, you must give instructions stating what you wish to distribute, whom will receive these items, and when this should occur. Estate planning means deciding in advance how this will happen. But quality estate planning means more than that. It will also involve:
- Passing Values: In addition to passing on your valuables to the heirs you choose, your estate plan will come with instructions for re-distributing your values. This includes your work, education, and religious involvements.
- Personal Care: How do you want to be handled in case you become incapacitated? Who will be responsible for making decisions related to your care? This will also be covered in your estate plan.
- The Care of your Children: Should you pass or become in capacitated while your children are still minors, who will manage their inheritances and become their guardian?
- Life Insurance: Your plan will include life insurance to cover your family members when you pass and disability insurance to cover your income if you get sick or injured. It should also cover long-term care to pay your medical costs in case you suffer an extended injury or illness.“Life insurance is present in almost every estate plan and serves as a source of support, education-expense coverage and liquidity to pay death taxes, pay expenses, fund business buy-sell agreements and sometimes to fund retirement plans,” said Cathy Pareto, financial services expert and Investopedia contributor.
- Transferring Business Responsibilities: At your disability, death, or retirement, your business will need to be transferred to a living heir.
- Providing for Your Family: Your estate plan will provide for those closest to you who need protection from creditors or have special needs.
All of this should be done while minimizing taxes, unnecessary fees, and court costs. Your estate plan will be a continuous event instead of a one-time process. The plan must be updated as financial situations, family matters, and laws change.
Is Estate Planning for You?
The short answer is that estate planning should be part of everyone’s life. It isn’t only for older or retired people, though it often becomes more of a concern once you grow older. It’s impossible to predict how long you’ll live and accidents or illness can happen at any time, even if you’re young.
It isn’t just the wealthy that need to think about estate planning, either, even if it may seem like they have more to preserve. In fact, a good estate plan may be even more valuable to the average family or those with small businesses, since they can’t afford to lose as much.
“Small business owners can have the comfort of knowing that their businesses will not be negatively impacted by their unforeseen deaths,” said Gregory Ricks, licensed insurance professional and wealth manager. “If properly drafted, an estate plan has the ability to ensure that the business will continue uninterrupted.”
Reasons to Create a Plan
Many people avoid estate planning because they aren’t aware that they have an estate, think they’re too busy, or believe they aren’t old enough yet. Others are uncomfortable thinking about it or are just confused about where to start. But here are some good reasons not to avoid this process:
Relieving Your Family
If you put off making a plan now, your family will have to deal with everything related to your estate once you pass. And without your specified instructions, this will be much more difficult.
Control Over Your Assets
When you take the time to create an estate plan, you’re the one controlling what happens to you and your belongings when you go. If you don’t make an estate plan, the state will take care of it for you and it probably won’t turn out the way you would have wanted it.
A lot of people seek out an estate planning lawyer for advice after they see someone close to them inconvenienced by their loved one’s failure to create a plan. Selecting someone to handle your assets after you pass on and choosing who will receive what, how they’ll receive it, and when it will go to them will all help avoid expensive court proceedings and family fights.
What Happens When the Court Handles Your Case?
In Case of Disability
If you haven’t created an estate plan and you cannot conduct business because of physical or mental incapacity, a court appointee must sign in your place. The court will decide how your assets will be used for your care through a guardianship or conservatorship (depending on which term your state uses), instead of your loved ones. This can be time-consuming, expensive, and hard to end if and when you recover.
In Case of Death
If you pass on and haven’t created an estate plan yourself, your state’s probate laws will decide how your assets will be handled and distributed. In many cases, your children and spouse will each receive a portion. This means your husband or wife would only receive part of your estate and it may not cover their living costs.
If you leave behind minor children, their inheritance will be controlled by the court. And if both you and your spouse pass at the same time, your children will have their guardian appointed by the court.
It goes without saying that most would prefer these issues be handled by family and not the court system. An estate plan gives you this advantage. It’s never too late to make a plan, and don’t forget to keep it updated once you do.