For many people, estate planning isn’t something that comes up as a regular topic of conversation. It’s understandable. No one wants to think about what will happen after they pass away. But if you have children or grandchildren, a business, or even a few pricey personal assets, making a solid plan for how your estate should be divided up upon your death is very important.
There are many different ways to leave a financial legacy and one of the most common is setting up a trust. If you’ve never heard of a this estate planning tool before, or aren’t sure which one is right for you, we’ll explain the differences to help you get started in putting together your estate planning documents.
What is the Importance of Estate Planning?
Estate planning is all about distributing, preserving, and managing an individual’s assets once they die. Don’t be fooled into thinking that this is only for the wealthy. Everyone, especially close family members, can benefit from effective estate planning.
Having your final wishes legally noted can avoid lengthy disputes among your loved ones over who should have which assets. If arguments move on to probate court to reach settlement, that can be an incredibly costly process. It also means that a court-appointed administrator decides where your assets go, rather than you.
If you’ve made solid plans for avoiding probate, you remove a significant stress on those left behind. You may even be able to spare your family from certain estate taxes when they inherit your property.
You’re likely familiar with the concept of writing a will. This is a legal document that outlines instructions on what property is being left to whom. If there’s minor children involved, a will should outline who will have legal guardianship and care of those children. It is important to note, that Estate Planning with a Will does not avoid the Probate Process. Wills do not provide the authority to transfer ownership until they have been admitted to Probate.
Wills are one of the most common parts of estate planning, but not the only piece in the puzzle. Life insurance policies and estate trusts are also frequently used alongside wills to help individuals pass their wealth onto loved ones.
Questions to Consider When Estate Planning
When you’re new to estate planning, you likely have many questions about how to leave your assets to your family, friends, or even charitable organizations. Before meeting with an estate planning professional, take the time to think about your current life circumstances and how these could impact your plans.
If you’re widowed, you, as the surviving spouse, will in most cases automatically inherit their property. But when you die, how do you want these assets to be passed on? Particularly if you’re divorced or part of a blended family, think about the current family dynamic and how you can best avoid causing additional heartache upon your passing. If you’d like to leave some of your wealth to a charitable organization, make sure that’s clearly noted too.
For families with special needs individuals, be sure to plan ahead for any care that they may need in your absence. You may need to set aside money to cover these costs.
The same goes for families with minor children. Think about who will be responsible for their care if you were to die before they reach adulthood. Decide if money for college is the legacy that you want to leave them, or if you want them to inherit funds at a certain age.
If you’re a business owner, your financial decisions become more complicated. There are state-to-state considerations that you’ll need to take into account. Depending on how your business was formed, you may have articles of incorporation that detail who ownership should be transferred to when you die.
Individuals who have high-value items like art or collectibles should also think through their plans carefully. Who do you want to inherit these family heirlooms? Since they can’t be divided like money, you could run into disagreement among loved ones if your feelings aren’t made clear in your estate planning documents. Similarly, you should also make a plan for digital assets like family photos, videos, or any NFTs and cryptocurrency.
Finally, you should also include health care information in your estate and retirement planning documents. Decide who will make monetary and medical decisions on your behalf should you become unable to do so yourself. You should appoint a trusted healthcare and financial power of attorney in your documentation to handle this.