People may think they need to have amassed a ton of wealth, own multiple lands, or have big mansions to have an estate. However, that isn’t entirely true. Ownership of cars, properties, cash, and other assets is what consists of your estate. Have you ever thought about transferring your assets to specific people or entities when you pass away? (family, loved ones, friends, charities, etc.) If that is the case, it would be in your best interest to make an estate plan.
Why should you make one?
Estate planning gives you control of the distribution of your wealth in every form when you pass away or end up in a vegetative state. If your goal is to transfer your wealth to loved ones, business, or philanthropic desires, an estate plan assures you that everything goes where you want them to. It is also helpful in reducing or eliminating huge tax bites when transferring assets and avoiding probate court.
But estate planning is more than just transferring your assets to people or entities you want to receive them. It’s also about planning for your own monetary and medical benefits. An estate plan helps you make important decisions financially or medically even when you’re unable to or become incapacitated. It achieves this by letting you choose who you want to be in charge of those decisions while you’re still alive or when you pass away.
Ultimately, it protects you, your family, and your assets.
What happens if you don’t have an estate plan?
The consequence of not having an estate plan is that you won’t have control over anything once you are incapacitated or if you pass away. Legally referred to as you being “intestate.“ Without it, your estate gets distributed and divided according to the laws in the area of your residence. Your family will also be subject to sizable tax burdens corresponding to the amount of inheritance they receive.
If you have minor children, then an estate plan is already long overdue. If you pass away without an estate plan, no one would know what your intentions and plans are for your children. The court will then decide the legal guardians of your kids, which might not put you at peace.
What is an estate plan?
An estate plan, simply put, is a group of legal documents that protect your assets and other belongings. An estate plan would more or less consist of the following documents:
- Will. This identifies who will receive your assets, who you want to be legal guardians of your children, and specify any final arrangements. It also states who you want to take charge of the execution of your estate plan. These will take effect once you pass away.
- Living will. This dictates your end-of-life medical preferences. It legally identifies who you want to make those decisions for you, especially if, for any reason, you are unable to communicate or make decisions yourself. It might sound unfavorable, but it is a necessity to protect yourself.
- Trust. Similar but more complex than a will but has the advantage of avoiding probate court and minimizing or eliminating gift or estate tax liabilities. It also indicates who will receive your assets but also how and when they receive them. A trust takes effect as soon as you sign it.
- Power of attorney. Legal document that gives a person you assigned to make your financial decisions if you are incapable of doing so. They are also in charge of paying any running bills and managing investments and business decisions.
How do you start an estate plan?
The first step in starting an estate plan is seeking professional advice from an estate planning attorney. These professionals have a deep understanding of how your estate could be affected by federal and state law. In addition, they provide you with all the information about probate court and how to set up your estate plan so that you maximize all of its benefits. A good estate planning attorney can even help you avoid probate court altogether.
Following legal counsel, you should calculate your wealth. Begin by listing your assets in money, properties, annuities, insurance, ownerships, and liabilities. Make sure to categorize your wealth by type. Different estate laws can affect assets based on their type. Grouping them beforehand will make strategizing transfers easier. By deducting liabilities from your wealth, you will more or less get an accurate understanding of your worth.
The next step is determining who your beneficiaries are or updating them. Indicating which assets go to whom in an estate plan makes distribution and disbursement easier. Having a predetermined list of beneficiaries in your estate plan also helps avoid any messy legal disputes in the future.
It is always good practice to review your estate plan regularly to keep it aligned with your intentions.