Despite the fancy-sounding title, estate planning is not just for the rich and wealthy. In fact, the term “estate” might not mean what you think it does at all.
When it comes down to it, deciding who will inherit your estate is a big decision and an important part of life planning. Smart estate planning helps protect families with young children as well as helping your heirs from overpaying on taxes. The simple fact is that without a plan in place, you won’t get to choose who gets what.
In this post, we’re going to give you several reasons why estate planning is important to ensure your loved ones are taken care of and avoid potentially devastating consequences.
1. Choose Who Inherits Your Assets
As we mentioned, estate planning isn’t just for the wealthy. Most – if not all – families will have some things to leave behind as part of their estate. Whether that be your family home, a second vacation home, stock portfolios, real estate investments, or even your most cherished possessions, there are many different things you might own that will fall under what is considered to be your estate.
If something happens to your family breadwinner or breadwinners plural, these items should be inherited by the heirs you designate. In the absence of an estate plan, it is most often left up to the court to decide who gets your assets. And while it may seem like an obvious and easy process — it often isn’t.
Family members have duked it out in court for years, and things can often get ugly. By having an estate plan to designate who inherits what, you and your family members can avoid a potential mess by leaving things up to chance in the court system.
2. Override Your Pre-Written Will
Believe it or not, your state already has a default will written for you, sometimes referred to as the intestacy statute. Unfortunately, it most likely will not distribute your assets how you would want it to. By planning your estate, you can override this statute by either:
- Executing a valid will yourself
- Creating a revocable trust that you will transfer your assets into while you are still alive
- Jointly owning your assets, or
- Providing for the disposition of your assets pursuant to a transfer on death (TOD) or beneficiary designation.
There are advantages and disadvantages to each option, so in order to create the best estate plan, you should have an experienced estate planning attorney review your assets and estate planning documents.
3. Protect Your Family If You Have Young Children
Naturally, no one wants to even think about the possibility of dying young, especially anyone who has children. But… what if it happens? What will happen to your kids?
If you have children, you absolutely need to be prepared for such a tragedy. This will specifically involve setting up a will, which is just a portion of estate planning. In your will, you will designate how any children under the age of 18 are taken care of, and what items in your estate are to be inherited by them when they come of age.
Without a will, the courts will decide not only who gets your assets, but also who will raise your children. If you care about who should become the guardian of your children if you pass, you will need to make such a provision in your will.
4. Protect Your Adult Beneficiaries, Too
It’s not just your children that will need protecting — adult beneficiaries could often use the help of a solid estate plan as well! There are several factors that can lead to an adult beneficiary making bad decisions with their inheritance, such as outside influences, creditor issues, or a divorce. Your adult beneficiary might even just be bad at managing money.
You can actually add clauses into your estate plan to help protect these beneficiaries from themselves and anyone who may try to take advantage of them.
5. You Can Appoint a Conservator
Not only should you name a guardian for your children (if you have them), you should also name a guardian of your estate or a conservator. The conservator will manage the assets that you have designated for your child or children to inherit.
Since you will leave instructions in your estate plan as to how your assets will be distributed, this person or institution will see to it that your wishes are followed through. This often allows your beneficiary designation to bypass the probate process, which can often be costly. This is where you will have to decide whether you want to set up a will, a trust, or both to distribute your assets should you pass.
6. Help Your Heirs Avoid Overpaying in Taxes
Another major reason to set up an estate plan is to state and/or federal estate taxes, or state inheritance taxes on estates above the exemption amount. These taxes can be a big hit to your overall estate, which means you will be leaving significantly less than you intended to your heirs. By properly planning your estate, you will transfer your assets to your heirs with the smallest tax burden possible, making the process easier and less costly for them.
Sometimes, married couples can even avoid estate taxes altogether via AB trusts, ABC trusts, or revocable living trusts. There are also several other more advanced techniques to reduce the taxes on your estate. Reducing or eliminating this tax burden is another reason it is best to work with an experienced estate planning attorney. Without a plan, the costs will be significant.
7. Avoid a Family Mess
Have you ever heard of families fighting over assets after a loved one dies? It happens more often than you’d think, and you surely don’t want your lack of planning to be the cause of family turmoil.
As part of your estate plan, you can choose someone to be in charge after you die, or should you become mentally incapacitated while you are still alive. You will also decide who gets what, as well as how and when they will get it. This can help ensure your assets are handled as you wish and keep things from getting ugly and going to court if a family member thinks they have been wronged.
8. Avoid Probate
Another great way to help avoid family strife is by making sure your estate doesn’t go to probate. Probate is the court-supervised process of authenticating your will (if you made one), assessing the value of your assets, paying off any remaining bills and taxes, and then distributing whatever is left of your assets to who the court deems to be your rightful heirs.
If that sounds like a lot, it’s because it is. The probate process can take a considerable amount of time — typically a minimum of six months — and will cause a great deal of stress to your family. It can also be extremely costly.
The probate court appoints a personal representative, or executor, of your estate, who is actually entitled to about five percent of your assets as an administrative fee. The attorney hired by this executor to oversee the proceedings is also given the same percentage, at a minimum, for their attorney’s fee. That’s already 10 percent of the estate swiped away by a lack of planning.
However, simply executing a simple will does not avoid probate. You will have to either:
- Create a revocable trust and transfer your assets into the trust during your lifetime
- Own your assets jointly with your spouse (or someone else), or
- Provide for the disposition of your assets pursuant to a transfer on death (TOD) or beneficiary designation.
Once again, this is an area where it will greatly benefit you to work with an estate planning attorney.
9. You Can Choose Your Personal Estate Representative
Why have an executor provided for you when you can choose one yourself in your estate plan? In your will, you should choose an individual whom you would like to handle your estate when you die. This is a position of great responsibility, giving the person the power to pay your debts and expenses, of your assets, and even the ability to liquidate your assets and divide up the cash proceeds.
Who you choose may have a great impact on how your will is carried out but having the ability to choose is far preferable than leaving it up to the probate court.
10. Protect Your Assets from Unforeseen Creditors
Protecting your assets is a major component of estate planning with your attorney. This can help protect your estate in the instance that a lawsuit comes up in the future. This is especially helpful if you work in an industry that often encounters litigation, such as commercial or residential real estate or the medical field. It also comes in handy against creditors.
While this measure will give up a bit of control over your assets, it is a good second level of protection should future creditors come forward and attempt to recoup some of your estate.
11. Avoid a Conservatorship Should You Become Incapacitated
If you have not set up the power of attorney to make financial decisions should you become incapacitated due to a physical accident or mental illness, then no one in your family will have the legal right to use your assets to pay for your living expenses or be able to execute documents on your behalf. This even includes your spouse. In the absence of a power of attorney is an expensive and lengthy court process to administer a conservatorship on your behalf. Setting up a power of attorney in your estate planning can help you avoid such a situation.
12. Allow Someone to Make Healthcare Decisions for You
Should you become incapacitated for whatever reason, you will need someone to make medical decisions on your behalf. This medical directive is similar to a living will, and will enable a spouse, family member, or friend, to act as an agent who will make decisions for you, rather than relying on a doctor alone. This person will also make the decision to cease life-sustaining measures should you be in a terminal condition such as a coma or vegetative state.
13. Restrict Your Children’s Access to Their Inheritance
Leaving your assets in a trust rather than allowing them to inherit them outright is often a good safety measure for your family. There are several clauses you can enact, such as the age at which your child will take over as trustee, and who will act as trustee until that time to ensure your assets are used in your child’s best interest.
14. Keep Your Will Out of the Public
If your will goes to probate, it becomes public record, meaning anyone can gain access to it. If you would prefer to keep these matters private, you should execute a revocable trust that will transfer all of your assets into it while you are still living. This avoids making your financial information and intended beneficiaries public record, which can be a cause of tension among family members.
15. Keep Your Assets in The Family If Your Spouse Remarries
Proper estate planning will help to ensure that your assets go to your children and grandchildren rather than your spouse’s new husband, wife, and other new family members.
16. For Your General Peace of Mind
Don’t you see how stressful not having an estate plan can be? The estate planning process will definitely be some work, but you can rest easy once it is done, having full confidence that your assets will provide for your loved ones exactly the way you intend for them to after you die.
Estate planning is vital for the future of your family. If you want to leave anything behind for those you love, you will need to have a comprehensive plan in place, that specifies who gets what, rather than leaving things up to the court. Without a plan, your family could face the burden of a court battle, major tax expenses, and even not have any say over who becomes the guardian of your children.