What is Estate Planning?
Estate planning is the process of anticipating and arranging, during a person’s life, for the management and disposal of that person’s estate during the person’s life, in the event the person becomes incapacitated and after death.
Reasons for Estate Planning.
An Estate Plan Protects Young Children
Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unthinkable. This is where the will portion of an estate plan comes in; to ensure that your children are cared for in a manner of which you approve, you’ll want to name their guardians in the event that both parents die before the kids turn 18.
An Estate Plan Spares Heirs a Big Tax Bite
Estate planning is all about protecting your loved ones, which means in part giving them protection from the Internal Revenue Service (IRS). Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest possible tax burden for them. Even just a bit of estate planning can enable couples to reduce much or even all of their federal and state estate taxes and state inheritance taxes.
Essential Estate Planning Documents
1. Last will and testament
A will gives you the power to decide what is in the best interests of your children and pets after you’re gone. It also can help you determine what will happen to possessions with financial or sentimental value. It typically names an executor — someone who will be in charge of following your directions.
2. Revocable living trust
A living trust is another tool for passing assets to heirs while avoiding potentially expensive and time-consuming probate court proceedings. You name a trustee — perhaps a spouse, family member or attorney — to manage your property. Unlike a will, a trust can be used to distribute property now or after your death. If you have substantial property or wealth, a trust can provide tax savings.
3. Beneficiary designations
When you purchase life insurance or open a retirement plan or bank account, you’re often asked to name a beneficiary, which is the person you want to inherit the proceeds when you die. These designations are powerful, and they take precedence over instructions in a will.
4. Durable power of attorney
A durable power of attorney allows you to choose someone to act on your behalf, financially and legally, in the event that you can’t make decisions. Don’t put off this chore. You must be legally competent to assign this role to someone. Older people worried about relinquishing control sometimes put off the task until they are no longer legally competent to do it.
5. Health care power of attorney and living will
To ensure that someone can make medical decisions for you in the event you become incapacitated, establish a health care power of attorney — also called a durable health care power of attorney. This is different from the previously mentioned durable power of attorney for financial and legal affairs.
6. Digital asset trust
You can use a digital asset trust to decide what to do with your electronic property, including your computer hard drive, digital photos, information stored in the cloud and online accounts such as Facebook, Yahoo, Google and Twitter. Create a separate list of your passwords.
7. Letter of intent
For instructions, requests and important personal or financial information that don’t belong in your will, write a letter. Use it to convey your wishes for things you hope will be done. For example, you may have detailed instructions about how you want your funeral or memorial service to be performed. No attorney is needed. The letter won’t carry the legal weight of a will.
8. List of important documents
Make certain your family knows where to find everything you’ve prepared. Make a list of documents, including where each is stored. Include papers for
- Life insurance policies
- Annuities
- Pension or retirement accounts
- Bank accounts
- Divorce records
- Birth and adoption certificates
- Real estate deeds
- Stocks, bonds and mutual funds
Importance of Estate Planning:
It protects the young inheritors:
The age gap between parents and children could sometimes be big. The parents always get worried about the future of their young children. The only thing that guarantees a secure future for young children is a perfect estate planning.
Helps you to avoid probate:
Among many things, you really don’t want this probate thing to happen to you. Probate is the court-authorized process of verifying your will (if you have one), estimating the value of your estate, paying off any unpaid taxes and bills and then distributing your remaining assets to the rightful inheritors (whoever the court deems.
Helps you to avoid a family dispute:
Most family dispute occurs during the distribution of property. Things could be messier if you have multiple marriages, and there are children in every marriage. You don’t want this mess to see the court if you can. Estate planning is the only way to save your family from this type of contention.
Get professional assistance.
As there are legal requirement binding the validity of each document, it is very essential you get expert legal help to prevent costly mistakes.
