Estate planning refers to making plans about how one’s assets will be shared after their death. Contrary to popular belief, writing a will is not an exclusive preserve for the wealthy. Every possession a person owns, whether it is a car, savings, stocks, or bonds, counts after their demise. This is why it is essential to specify how property should be dealt with after one’s passing.
There is no doubt that estate planning is a somber and emotional experience. However, it is incredibly essential not to put it off since there is no telling what the future holds. The most compelling reason for a person to get their affairs in order is to protect their loved ones.
One may want to start with writing a will or living trust. The instrument one chooses must specify who will inherit which property in their absence. If the beneficiaries happen to be minors, the person will have to appoint a guardian for them.
Estate Planning Provides Reassurance
It may not be immediately obvious, but estate planning is very useful for people and their families. You may be curious how it can do so. There are four main ways that estate planning helps.
- By Specifying Who Will Inherit Assets - If something happens to the breadwinner, the family can be reassured that there is a will to show how assets will be shared. This will save the family a lot of agony and squabbling over the division of the property. It also ensures minimal court involvement in sharing out the assets. Should one pass on without planning their estate, the court gets to decide how possessions will be divided according to state law. This often causes immense anger among family members, which is the last thing anyone wants. Court-mandated property division also tends to be a time-consuming and expensive venture, especially where legal fees are involved. One can avoid all this by planning their affairs early in advance.
- To Protect Young Beneficiaries and Dependents - Estate planning goes beyond the division of property; it also includes appointing guardians for underage children. This ensures that their interests are protected if one passes away while they are still minors. In the will, one can appoint people they trust to take good care of their children, as opposed to leaving them in the hands of court-appointed guardians who may not have their best interests at heart. Moreover, the guardians can act as trustees for the children until they become of age. Any property one bequeaths their children will be in good hands if they have such an arrangement.
- Minimizes Transfer Taxes - If one is planning to transfer a substantial amount of wealth, the estate planning process can help minimize the tax charges that are incurred during the transfer process. Bear in mind there are three types of taxes that one may have to pay when transferring assets. These are the gift tax, estate tax, and generation-skipping tax. By planning their estate early, one can strategize on how best to transfer wealth without incurring hefty taxes. This can save their family a lot of money.
- Protecting Family Wealth - One of the biggest downsides to failing to plan one’s estate is that one has no control over how their wealth will be shared once they are not there. Their hard-earned possessions may end up in the hands of irresponsible family members who are given to squandering wealth. Estate planning makes sure that one provides directions on how family wealth should be spent. That way, a person gets to leave their wealth in responsible hands, ensuring that it lasts for generations.
Question and Answers
Here are some commonly asked questions to help one understand more about Estate planning:
Q: How often should one review their estate plan?
A: It is advisable to review an estate plan every three to five years to ensure that it is still valid and legally enforceable.
Q: Can an individual prepare their will?
A: In some states, an individual can prepare their will if they wish. Generally, however, it is advisable to seek professional help since estate planning can be quite complex.
Q: What are the documents required for estate planning?
A: Some important documents to help in planning an estate include beneficiary designations, provision for digital assets, and valid power of attorney document.
