The Importance of Estate Planning
Estate planning is one of the most crucial things you can do for your family and loved ones. However, most people dread this task! Most people assume it to be a task for the old and the ultra-wealthy, but that's not the case. You can get an estate plan as a college student, a single person, a parent, or an older couple--regardless of your age or financial status.
Estate planning should be done as early as possible, since you don't know exactly—when--it will become necessary. Estate planning is like insurance; it's there for you when you need it. The point of a good estate plan, in my opinion, is to ensure that very little goes into probate—which takes up the most time and money. While you might not transition, but a valid HIPAA authorization or even a power of attorney is critical in an emergency once you are over eighteen. Without it, you loved ones may be in a situation where they cannot help you as much as you'd like—or need. Further, an estate plan is the only way to ensure your needs and wishes are met. If you still aren't convinced about estate planning, we've highlighted more reasons why it's important.
But before that…
What is estate planning
Estate, in this case, isn't just those big mansions or huge stock portfolios; it is everything you own, regardless of its quantity. And an estate plan is the orderly disposition of your estate according to your wishes. An estate plan, at a minimum, includes a will, a valid power of attorney, and a healthcare power of attorney. To be clear, everyone in the United States has an estate plan! The question is whether it is the one you created or the one created by the law in the state in which you live. Several popular stars died without a will and, therefore, elected to use the estate plan ensconced in the law. Aretha Franklin (Michigan estate plan), Prince (Minnesota estate plan), Sonny Bono (California estate plan), and Kurt Cobain (Washington estate plan). So, transitioning without a will or estate plan is not unheard of; it makes things rather challenging.
Below are five major reasons estate planning is important:
Saves time and money
The term intestate means you have transitioned without a will. And depending on the state in which you live, the law will determine what will happen to your assets. During this period, certain things must occur—like looking for heirs. That's right! The court will make the person handling your estate take out an ad in the paper looking for children and other relatives—even if your family agrees you don't have those things! You'll have several court appearances as people you owe—or not—seek to assert a claim against your estate. This means that there will be lawyers, court appearances, and paperwork involved, and the estate will pay for the fees—leaving less for your children, your family, or your charitable gift. And, depending on how complex it is, it may take months or even years to complete. In some states, like Illinois, attorneys are paid their hourly rate. However, in other states—like Missouri—attorneys are paid by the amount of assets going into probate—the bigger the estate, the more the attorney will make, regardless of the amount of work done. In those cases, it makes sense to have an estate plan since it can lower the amount a lawyer would receive from probating the estate without a will.
2. Goes beyond a will
It's important to note that a will and an estate plan are different. They both give instructions on how you want your assets handled, but an estate plan goes beyond that. It may include:
Health care directives regarding the kind of treatment you may or may not want if, for instance, you become incapacitated. Incapacity means different things and has different stages. For example, it could be that you can understand but cannot communicate—as with a stroke; you are in a medically induced coma but a full recovery is expected; or you have a form of dementia that is progressive. A healthcare directive lets the physician and the rest of the family know who you trust to make decisions for you and what you'd want those decisions to be.
A trust can ease the process of handing over your assets to your heirs and providing tax benefits for you and your beneficiaries. Most people do not need a trust; however, it can be beneficial where children are involved. For example, would you want your eighteen year old to receive $50,000 in insurance? How will you handle special needs children who grow into adulthood?
Power of Attorney will allow someone to handle daily decisions like those with healthcare plans, doctors, and retirement plans. Depending on how much authority is granted, the person to whom authority is granted—called an attorney-in-fact—can sell property, sign documents in the POA's name, and change retirement/pension plans, among other things.
3. Eliminates family mess
You've probably heard of those wars between families, where, for example, the parents die, and one sibling thinks they deserve all the assets left. This type of scenario ends in big messes and causes damage in the relationship. An estate plan can stops the disagreements by letting everyone know what you want to happen. Sometimes, it's the difference between celebrating your life and waiting for the service to conclude!
4. Avoids big taxes
Estate taxes can consume a vast amount of assets you leave your heirs. And to avoid this, estate planning may help create a smaller tax burden for them.
5. Protects children
In the sudden death of the parents to a minor, the court decides who will raise them. However, you can tell the court your wishes regarding the guardian of your children, including the values you want to encourage, the religion you want them to practice, and the rewards you want them to have.
An estate plan is an important step in adulthood. Not only can it help avoid potentially devastating consequences to your loved ones, it's the right thing to do no matter what age you are or how much you have.