Estate planning is said to be the process of disposal of your belongings to the heirs after your demise. It is done in order to safeguard your assets as well as your loved ones’ while preventing any kind of complications. While talking about estate planning, people think it is meant for rich and older folks but the truth is it is meant for everyone irrespective of the wealth or assets you own as it is a must requisite to protect your family’s financial situation while you are alive or dead.
To preserve your wealth, you need the basic documents of the estate planning viz. last will, a healthcare proxy, a power of attorney and a living will. A will is required to specify the way you want your assets to be distributed after you pass away while designating an executor to ensure the proper proceedings. A health care proxy is required to designate somebody to manage your medical affairs on your behalf if you are ever incapacitated and unable to make decisions.
A power of attorney is required to manage your financial affairs in case of your incapability to do so. A living will document is required to specify your wishes for the type of treatment you want to have, in case of dire medical situations. Apart from distributing your assets, an estate plan also strategizes to reduce tax, protect the assets from disputes and manage your resources in the way as desired by you. Below mentioned are few reasons explaining why estate planning is important:
Why Estate Planning is Important?
1. Protect your estate: You spend your whole life earning and accumulating the assets that you own through immense hard work so to lose these things after your death, is something that you will never want. However, in absence of estate planning, you can lose a lot of assets to the state instead of going to your family after your demise as the fate of your assets will be in the hands of the state court. Also, in case of debts, the assets will firstly be distributed first to the creditors and the leftover property is then distributed to the family. Estate planning is thus required to safeguard them by using various legal documents and preventing your family from a lengthy, complicated and expensive process.
2. Avoid probate: If you pass away without a will or trust, then the probate court is authorized to ensure the distribution of your property to your loved ones which is a time and money consuming process. To refrain your family from probate, estate planning is a must to ensure who will be the beneficiary and how the distribution will be done.
Also, if the estate is probated then your will and assets will come in public record. Hence opting for a trust can ensure the privacy and protection of your family and assets.
3. Tax reduction: If you own a significant wealth then you are required to pay the state and federal taxes which have a huge impact on the wealth, thus an estate plan is required by you that is designed to reduce your tax burdens.
As on date, every state is imposing its own estate tax if you leave significant assets at the time of your demise. If you own an estate that owes the tax, then a will can help you with tax planning to avoid estate taxes and the establishment of trusts for the beneficiaries. Apart from this many people give lifetime gifts to charities, family, educational institutes, etc. when they are alive in order to minimize their estate taxes. So lifetime gifting through estate planning too can help in tax reduction.
4. Protection of minor/special children: If you have minor or special children then you need to ensure that there must be someone always to raise them and take care of them when you are not there. Estate planning is thus required to ensure this by either appointing a guardian to take the responsibility or by directing a trustee to use the trust’s money for the minor or special children.
In the case of minor children, it could be directed that when the child/children reach a designated age the assets should be distributed to them. However, for the child or person with a disability, the trustee or the guardian has to provide the services for a lifetime.
5. Preparing for incapacity: Apart from taking care of your belongings and your dear ones, estate planning is also done to safeguard your ownself in case of disability. Life is such that you can’t predict, it can bring the most unexpected too. Hence, estate planning must be designed to tackle such situations as well as if you ever get incapacitated due to illness or an accident. In such cases, you won’t be able to take care of your medical and financial affairs and thus you will need someone to do that for you. In the absence of documents like power of attorney, healthcare proxy, etc., the court is authorized to appoint someone who might not be trustworthy or inefficient to do that. Thus to avoid such circumstances, you must have your estate planning documents designating your trustworthy person as guardian to make financial and medical decisions on your behalf during your inability to do so.
Estate planning is something that we all need to face sooner or later to safeguard our assets and our loved ones. A proper estate plan can let you be relaxed that you have your clear decisions documented for any kind of emergency and that your assets and family are safe and secure.