Six Benefits of Estate Planning
- An estate plan helps your family and friends understand your wishes, and it assigns beneficiaries while you are living and after your death.
- You will need to name a beneficiary to your estate.
- An estate plan will eliminate or minimize the court's involvement in the distribution of your assets.
Estate planning is an essential part of creating financial stability. An estate plan helps your family and friends understand your wishes, and it assigns beneficiaries while you are living and after your death.
Many people shy away from estate planning because they assume it is only for the rich. However, that is not true. Everyone needs an estate plan. Below are six important reasons you should create an estate plan for the new year.
1. Name Your Beneficiaries Early
The benefactor is the person who writes and owns the estate plan. As the owner, you will need to name a beneficiary to your estate. A beneficiary is a person who is legally entitled to receive the benefits of your estate, such as money, assets, clothes, or whatever else the benefactor lists in their estate plan.
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When you are planning your estate, you control who receives your assets. If you don't have a family member or friend you'd like to leave your assets, there are other options. You can leave your assets to your pet, a charity, or anyone else you feel is worthy of receiving your property. Whoever you choose, the beneficiary should know about your plans so they can adequately plan to care for your assets.
2. Eliminate Legal Battle
An estate plan will eliminate or minimize the court's involvement with your estate plan and the distribution of your assets.
When you have transitioned or can't physically take care of yourself anymore, if you don't have an estate plan, the courts will assume where or to whom your property should be given. Also, not having an estate plan can cause a time-consuming and costly legal battle between family members or the courts.
3. Tax Reduction to Your Heirs
When you plan out the distribution of your estate, keep in mind that you and your heirs should know about several types of estate taxes. Therefore, it is highly recommended that you sit down with an estate planning attorney to research the taxes associated with your estate and create the most feasible plan to reduce the tax burden on your heirs. A few taxes that are generally associated with an estate plan are federal and state estate taxes, income tax, and inheritance tax.
It is important to note that tax laws are always changing. That means some previous rules and rates may differ, which can alter how much taxes are paid. Therefore, to ensure the best financial decisions are made, investing in a tax professional could be beneficial as they could help find ways to lower your taxes.
4. The Power to Choose Early
Typically, people can make decisions about what happens to their assets. They usually will have their own best interests at heart, but there may come a point where they may not be able to make these major life decisions anymore. As a result, when a person becomes physically or mentally incapable, having a power of attorney could be beneficial.
There are two types of power of attornies, financial and durable.
Financial Power of Attorney
A financial power of attorney is a legal estate planning document that names a trusted individual and gives authority to make financial decisions.
Durable Power of Attorney
A durable power of attorney is another legal estate planning document that gives authority to a person designated by the individual to make decisions based on their behalf. These decisions regard legal actions, medical treatment, and financial accounts.
In some states, a financial power of attorney is considered to be a durable power of attorney. To ensure that you appoint the correct power of attornies, research state laws, or reach out to a lawyer for professional advice.
5. Protection for Minor Children
Another benefit of having a comprehensive estate planning process is choosing who looks after your children if you die before they turn 18. If you do not have a surviving spouse and there is a particular person you want to look after your children, you can appoint them when estate planning.
6. Additional Assets and Decisions
An estate plan is beneficial as your loved ones will receive your assets. However, it is also important to have other policies in place, such as life insurance. Having life insurance allows your beneficiaries to receive some money in case something happens to you. This may be another item to consider, but consult with a personal advisor before making any significant financial decisions.
Recommended Read: What is an Estate Plan, and Why Should I Have One?
Also, some other legal documents to consider when doing estate planning are a trust and a will. A revocable trust allows you to benefit from your assets when you’re living and benefit you after your passing, as your beneficiaries will have access to these assets and bypass the probate courts. A will is a legal document that specifies what beneficiaries inherit. A will goes through the probate process as the court will divvy up a person’s assets according to the will.
Recommended Read: Why You Need a Trust to Pass on Generational Wealth
The Money Wrap-Up
The reason why estate planning is important is that tomorrow is not guaranteed. Therefore, making wise long term decisions is crucial. As a person gets older as time goes on, their capabilities may not always remain the same. As a result, to help make sure that all decisions are based on their behalf and their family is well off, making a compact estate plan is a step in the right direction.