Why Is Estate Planning Important? 5 Things You Need to Know
www.www.worldexecutivesdigest.com | Why Is Estate Planning Important? 5 Things You Need to Know | Why is estate planning important for everyone? While thinking of the end of life isn’t fun for anyone, setting your family up with an estate plan is important.
There’s a misconception about estate planning, which is that it’s only for wealthy people who have heirs. That’s probably why an estimated 60% of Americans don’t have a will or estate plan in place.
The reality is that you need to have a will or some kind of estate plan, even if you don’t have a lot of money saved up or you’re single with no heirs.
Why is estate planning important? You could leave your family in a lot of financial difficulties if they’re left with no instructions and they’re grieving. There are other, more practical reasons why you need an estate plan.
Read on to discover what they are.
What Is an Estate Plan?
An estate plan is the planning process where you leverage what you have to ensure your beneficiaries get the most amount of money possible. You limit the tax liabilities and maximize distributions.
It’s different from a will because a will is simply a legal document that outlines the distribution of your assets. In a will, you can also appoint a guardian if you have an elderly parent or minor child in your care.
Why Is Estate Planning Important?
There are many reasons why you should consider an estate plan for your assets. If you have life insurance policies, retirement savings, or just simple belongings, you need to have an estate plan.
These are the most important reasons why you should have a plan in place.
- Your Family Is Covered
The worst thing you can do to your family is to leave them in doubt as to what your wishes are. You may be the only earner or the primary earner in your household.
If you don’t leave instructions, there’s no way to know who the beneficiaries are. Your family could be left in financial trouble without any financial estate plan in place.
Let’s say that you’re in a situation where you don’t have a family to speak of. You just have some important people or organizations in your life that you want to benefit from your savings.
There is no way for anyone to know your wishes to donate funds to without an estate plan in place.
- No Need for Debate or Family Messes
You know that families can be tight until money enters the conversation. At that point, it’s easy for the gloves to come off and get ugly.
When Aretha Franklin died in 2018, it was said that she didn’t leave a will. That left family members squabbling over who should handle the estate.
Months later, a few copies of handwritten wills were found in her home. These wills had different instructions and were examined by handwriting experts.
All of this could have easily been avoided if the Queen of Soul had a solid estate plan in place. Her family is having a very public fight over control of her estate with no resolution in sight.
You may have a completely different situation, but you shouldn’t leave your family to fight and guess what your intentions were with your assets.
- Manage Tax Liabilities
A huge reason why you want to plan your estate is that the government will want a major piece of it.
Proper estate planning will enable your beneficiaries to get the most out of your assets. You can set up trusts or other financial vehicles to reduce taxes.
Not only would taxes come out of your estate, but your beneficiaries could be surprised with a large tax bill, too. A good estate plan will anticipate taxes and manage them accordingly.
- Who Do You Want to Handle Your Estate
What happens to your money when you die, and you don’t have a will or estate plan? Your death is considered intestate.
In that case, your spouse or civil partner will likely inherit your estate. That’s not guaranteed though, because each state has its own intestacy laws. Basically, if you didn’t decide your will and plan accordingly, the state will make one for you.
The state will then use the laws of intestacy to determine who inherits your estate.
Do you want to make that decision yourself or do you want the state to handle your affairs? That qualifies as an important reason for estate planning.
- Plan for Your Needs Before You Die
You may only consider an estate plan for when you die. There may be a time when you’re incapacitated and not able to make financial decisions.
Estate planning can protect you and your assets in this instance. You can have a power of attorney who can direct your estate to make sure your needs are met.
How to Create an Estate Plan
Once you understand how important it is to plan an estate, you should get started right away. You could go the DIY route or use an estate planner.
To plan your estate, you’ll need to know how estate taxes work. You’ll need to draw up a will that could be held up in court in case anyone challenges it.
Your estate plan needs to include the power of attorney and health directives in case you can no longer make those decisions.
It is best to work with an estate planner, especially because you’re not a legal or tax expert.
Estate Planning Is Smart No Matter What Your Situation Is
An estate plan can be your best defense in the event you’re incapacitated or die unexpectedly. You don’t want to leave your family in a situation where they need to figure out how to distribute your assets.
Why is estate planning important? There are a number of reasons why you want to have an estate plan. You get to protect your family and distribute your funds the way you want.
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