What is an Estate Plan?
An estate isn’t something reserved for the elderly or wealthy; nearly everyone already has an estate. It consists of everything you own such as a car, house, bank accounts, investments, insurance, and personal possessions. Estate planning puts a framework in place to dictate what happens to those things when you die, or in the case of disability or incapacitation. Essentially, it outlines who gets what and when.
Estate Plans Are For Everyone
Estate plans are often associated with retirees, but the reality is everyone should have a plan in place. Unexpected things can happen at any time, which makes having a plan something everyone can benefit from. The reality is this:If you don’t have a plan in place, the state decides what happens to your assets, and you may not like what they decide. In addition to asset distribution the state may decide things such as the guardianship of your children. This may also be the case should you become disabled or incapacitated.
Estate plans also ensure everything is in order after you’re gone. This helps loved ones easily find the documents they need such as financial records, titles, insurance policies, and more. The last thing anyone wants to do during their time of grief is track down old documents. Estate plans can accomplish a myriad of goals, such as:
- Naming a guardian for your children
- Establishing instructions for your care should you become disabled or incapacitated
- Providing for family members with special needs
- Obtaining life insurance to provide for your survivors
- Providing transfer of your business upon retirement or death
- Minimizing taxes, legal fees, and court costs
Common Types of Estate Plans
A last will is the most common form of estate planning. Your will provides the state with instructions on who gets which assets. After your death all assets are subject to probate, which is the court process that distributes your assets. If you have a last will in place, the probate court can authorize your executor to distribute your estate according to your instructions.
A living trust allows transference of assets to a trustee without going through probate court, and prevents court control should you become incapacitated. Plus, you can provide instructions for after your death, meaning your wishes can be carried out by a trustee after you’re gone – something a will can’t provide. This includes things like spending limits and divorce or litigation shields. A trust can be more expensive initially, but allows you to avoid the costs associated with probate court.
Getting Started With an Estate Plan
If you can’t afford an expensive estate plan, start with something basic that you can afford. You can always modify or add to it over time. Things like power of attorney documents (often referred to as a living will), a last will, and life insurance are good places to start. To whom you decide to leave your assets can carry tax implications. It will vary by state and investment type, and skilled planning can help navigate the tax burden and efficiently distribute your assets.
Don’t forget to consider sentimental value in addition to monetary value when considering where to distribute your assets. Family heirlooms may not carry a large price tag but can be just as important to your survivors. It’s also important to check and update the beneficiaries on things like retirement and insurance accounts. In some cases, these may outweigh the beneficiaries listed in your will. Make sure to be diligent in your planning, as any overlooked assets can be given to the state as unclaimed property.
Above all, having an estate plan in place delivers peace of mind. It assures that your family and loved ones will be taken care of in the way you specify when the time comes.
The information provided is for informational purposes only. It is not intended to be used, and should not be used, as the sole basis for legal and/or tax advice. Individuals should seek and rely upon the guidance and advice of their own legal and tax counsel before making any decisions regarding any planning, investment, tax concepts or strategies discussed herein. Individual circumstances may vary and results discussed are no guarantees of applicability or future performance.
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