Estate planning should be a vital part of your life plans. It allows you to organize your assets and dispose of them in the manner you prefer. Even more important, it allows you make vital provision for what happens to your kids and even yourself, against when you're no longer able to.
Unfortunately, many either underestimate the importance of estate planning or flat out refuse to believe they need it. As this 2019 report from Caring.com shows, roughly 60% of Americans fall into this category. This article explains why you should think differently and what estate planning strategies you can implement.
What is estate planning?
Estate planning refers to strategies that help you protect and administer your estate after death and even during life. When many people hear the word ‘estate', they automatically think estate planning is meant for only the rich. Nothing could be further from the truth.
Everybody has an estate, no matter how little. Your estate could consist of expensive assets like cars, houses, bank accounts, stocks, artwork. It could also consist of things you don't expect, such as your retirement account, a life insurance policy or a credit note.
Estate planning is ordinarily understood to involve making plans that ensure your assets can pass on to whomever you wish, however you wish. But it involves much more than that. It helps you make adequate provision for your children should you be unable to raise them beyond the age of 18. It also helps you make critical provision for what happens to you if, due to illness or old age, you are unable to take life decisions for yourself.
Why do you need to bother about estate planning?
There are a ton of reasons why. You should know, for instance, that regardless of whether you choose to take your estate planning seriously, you already have one in operation and it will dictate your life and assets.
From the moment you were born, an estate plan was made for you. The laws of all 50 states in the US contain rules relating to how your assets will be disposed if you fail to do so yourself. This means all your property could go to people you never dreamed would inherit you. Even more concerning is the fact that not only your assets are at risk of being disposed of against your wishes.
If you happen to fall very sick and are unable to make decisions for yourself, the laws of the state will determine how you live from then on. If you have young children and you die before they reach the age of 18, you don't get to decide who takes care of them. Frankly, failing to have an estate plan basically amounts to leaving your life, family and assets to pure chance. That's hardly a risk anyone would willingly take.
Unfortunately, many unwittingly take on this risk. Data from the American Bar Association shows that fully 55% of Americans die without a will or an estate plan. Here are more reasons why you simply cannot do without an estate plan.
Cater to your own needs
While estate planning is often concerned with what happens to your assets after you die, in most cases, it starts with you. Many don't keep this in mind but life events often happen that end up leaving people incapacitated or unable to take decisions for themselves.
According to statistics from the Social Security Administration, 1 out of 4 of today's 20 year olds will become disabled before 67. This shows that there's a much greater chance of disability and incapacitation than many are willing to admit.
It makes sense to take appropriate steps and make provision for who can make financial and medical decisions on your behalf. If you do become incapacitated, you can trust that your designated healthcare proxy will make the best decisions for you.
Protect your assets
Again, estate planning works to your own personal advantage to help protect your assets during your lifetime. There are many risk possibilities that may threaten your assets. If you run into debt or have a lawsuit decided against you for instance, your assets could be at risk.
Estate planning provides strategies that you can implement to protect these assets by removing your name from them. You can utilize these strategies to put the assets into legally protected vehicles that not only keep them safe but also make them more profitable.
Plan for succession
How would you feel if that aunt you never liked gets to inherit a substantial part of your estate? Well, that's exactly what will happen if you fail to plan for succession.
With validly drawn up succession documents, you can dispose of your wealth in the manner you choose and to those you care for. If you have children below the age of 18, you can make financial provision for them against the future by setting up a trust fund.
Even better, you can utilize these strategies to reduce estate, gift and other transfer taxes. This way, you can ensure that your estate gets transferred in the most tax-efficient way possible, leaving more for your beneficiaries.
Types of estate planning strategies you can use
Truth be told, there are more estate planning strategies than can possibly be exhausted in this article. To top that off, even more are being developed every day. Despite this, there are certain well-known estate planning strategies. These include wills, trusts and powers of attorney. We'll discuss these below.
A will is a legal document that lets you name those you want to inherit you and what exactly you want them to inherit. More than this, a will conveys your wishes on what you want done after your death and how you want it done.
Therefore, your will should be one of the critical parts of your estate plan. You can dispose of much more than your assets in it. Sentimental belongings, keepsakes and treasures with no intrinsic value can be passed down through your will.
There are also several types of wills to choose from. These include simple wills, living wills, joint wills and testamentary trust wills. A living will gives you quite an advantage as it takes effect even during life. It can be used to provide instructions on what type of medical treatment you wish to receive and any unexpected situations.
A trust provides you with a unique way to shelter your assets. It is a legal device that transfers ownership of property to another person with the condition that they will administer it for the benefit of a named beneficiary.
Trusts can be used in several innovative ways that can reduce your tax liability, shelter your assets and provide for your heirs. You can choose to make a living trust that takes effect during life or a testamentary trust that only takes effect after death.
There are several types of trusts as well, with options including revocable and irrevocable trusts. Others include credit-shelter trusts, generation-skipping trusts and qualified personal residence trusts.
Powers of attorney
A power of attorney is a very special legal document that gives another person authority over your assets. When you complete the document, you can empower another person to make financial or medical decisions on your behalf.
These form the basic types of powers of attorney, which may be financial or health care. Importantly, the document outlines the conditions under which the power may be exercised and any other controls that you may wish to include.
Other important strategies
Apart from these three, there are other important estate planning strategies that are routinely utilized. They include the following:
- Beneficiary designations
- Letters of intent
- Guardianship designations
- Annual gifting
- Marital deduction
- Life insurance
- Trust funds for minors
Now that you understand why estate planning makes sense for you, your next concern should be finding a qualified professional to help you make a proper plan. When you find good advice and implement it properly, you can ensure that your future, and that of your heirs, is safe.
For more information on Why You Need an Estate Plan, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (855) 451-1260 today.