To many people, estate plan is all about having a will. But it is vital you know that a will is only a part of an estate plan. Estate planning goes way beyond just designating your assets to a beneficiary. It serves many purposes including organization of your whole estate, protecting the interest of your beneficiaries, strategies to safeguard assets and avoid taxes, catering for long term incapacitation, etc.
This post covers one of the numerous advantages of estate planning which is safeguarding assets and avoiding taxes
Safeguarding assets
Now that you are alive, well and capable of taking care of your assets, safeguarding them won’t really make much sense to you. Probably it will be too late when it starts making sense to you.
Planning your estate in order to safeguard your assets is a really good move as your assets might be at risk of many factors. For instance, at your death the court might distribute your assets to the persons who you wouldn’t give them to. There are many ways by which you can safe guard your assets.
Making a will
A will is a legal document which entails the testator’s intentions concerning how he wishes to divide his estate among his heirs. The will also name the executor. A will is a very useful document for protecting and safeguarding your assets.
In the case of your death, your chosen executor will ensure your assets are divided among your heirs exactly how you wanted it. This gives you absolute control over your assets even after your death. But when you die without a will, the court will be in charge of distributing your asset.
If the court should distribute your assets; first of all, your entire estate will suffer from lack of privacy. Secondly, your estate might be tied down for month’s even years without being distributed. Also, if you don’t make necessary plans via your will about who your creditors are, what you owe them and how to settle them; it is likely for different persons to falsify claims that you owe them. Apart from that, part of your estate might be used to settle your creditors leaving little or nothing for your beneficiaries.
Setting up a power of attorney
As part of protective measures for your estate, you could set up two types of power of attorney, health care power of attorney and financial power of attorney
Health care power of attorney
This is also known as health care proxy. It allows you to grant someone else medical rights. Nobody prays for sudden incidents that will put them out of commission for a long time. It could not necessarily be sickness or an accident it could be normal ageing that makes you incapable of making your own decisions. Whatever might be the case, you will need someone to be making decisions regarding your health care, treatment plans etc. This document gives the person right to make such decisions on your behalf.
Financial power of attorney
The concept of this document is same as that of health care proxy but, the difference is that, while a health care proxy makes health decisions on your behalf; a financial power of attorney makes financial decisions on your behalf.
A financial power of attorney has the power to make any financial transactions what so ever on your behalf when you are incapacitated.
Power of attorney protects you – your health – your estate from unplanned events such as incapacitation.
Avoiding taxes
Estate planning could also serve as a strategy to avoid tax especially if your estate is a pretty large. One common way of avoiding or minimizing tax is through trust.
Trust
Trust is a legal relationship which enables one party (the trustor or) to give ownership rights to another party (the trustee) for the benefit of a third party (the beneficiary). A trust could be a very complex process. There are different types of trust depending on which one suits your need.
In the case of tax avoidance, an irrevocable life insurance trust (ILIT) could be a good option for you. But before you enter into any form of trust, it is very important you consult your attorney, estate planner, adviser, etc.
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