A vacation, buying a new car and moving to a different city – these are fun things to plan. What happens to your possessions after you’ve moved to the next world? Not so much fun to plan. However, like it or not, it’s never too early to plan how the assets you’ve created over the years will be distributed amongst your loved ones. This is what Estate Planning entails.
Estate planning is important not only for the rich and famous with mansions to their name but also for the average middle-class person. Here are a few reasons why you should be considering it.
1. To Plan Your Own Future
Estate Planning doesn’t just look into what happens to your belongings after you die. It also deals with what would happen if you become incapacitated in such a way that you cannot take decisions for yourself.
For example, if a person were to go into a coma or reach an advanced stage of conditions such as Alzheimer’s. In such cases, having an estate plan in place will ensure that your savings can be used to meet your future medical costs.
It may also include an insurance plan for when you are no longer able to take care of yourself and designating a power of attorney or health care proxy to take financial and medical decisions on your behalf. This estate plan must be shared with the people you trust so that your wishes and needs can be met even if you are unable to say them out loud.
2. To Dispose Of Your Assets In The Way You Want
When we die, everything we have bought and preserved over the years is left behind. If there is no will or estate plan in place, the state you reside in gets to decide who gets what. Unfortunately, this is often the cause of family squabbles and frustration. Hence, it is better to have a clear plan for the distribution of your assets.
Whether you want to divide your belongings equally amongst family members or leave it all to one person is your choice. It is also important to note that merely making a will and designating beneficiaries for your insurance policies is not enough. These documents must be reviewed from time to time to ensure that they stay current.
3. Protect Young Children
If you have young children, drafting a will becomes all the more important. In case the unthinkable happens and you and your spouse pass away before the child’s 18th birthday, they need to be provided for. In such cases, the estate planning checklist needs to include the question of inheritance as well as naming guardians for your children.
If you miss out on making your will or do not name legal guardians for your children, the courts will step in and assign someone to care for them. And it may not work out in your children’s best interests.
4. To Reduce Taxation
When assets are transferred from one person to another, they are subject to taxation. This includes physical assets like homes, cash, and shares of privately held family businesses. While small amounts may be transferred without any taxes, larger amounts are often subject to heavy taxation.
In some cases, not planning your estate correctly can even make the beneficiaries pay double tax. For example, you may divide your assets only between your children who may then further divide it amongst their children. In such cases, the asset is taxed twice- once when it is inherited by your children and for a second time when it is inherited by your grand-children.
Thankfully, with the help of a professional estate planning experts, you can reduce the amount of tax your beneficiaries need to pay. For example, you may give part of your assets directly to your grandchildren and hence reduce the tax burden on your family.
5. To Protect Your Family
You may have spent a lifetime building your assets but if you are not careful, they can be taken away with frivolous lawsuits in the blink of an eye. Unfortunately, as people grow wealthier, they get targeted by smooth-talking rogues attempting to get rich quick by stealing their hard-earned wealth through fraudulent lawsuits.
By planning your estate, you put them into limited liability entities or trusts. This is a crucial tool in protecting your family wealth. You should also take a close look at insurance. Some insurance companies offer protection against legal challenges.
6. To Keep Your Family From Starting A Feud
Inheritance is one of the most common reasons for families to break apart. In many families, the moment a person with money passes away, the rest of the members starts fighting over who gets what and how much. One member may think that he or she should get more than the others.
In many cases, the squabbles can get so ugly that they end up as court cases that last for years. While it does not eliminate the issue completely, planning your estate properly can drastically reduce the risk of a family feud going to the court.
It gives you control over who handles your finances if you are mentally incapacitated and once you die. Dividing your assets yourself also removes any ambiguity as to who gets what and quells any possible family strife.
The Bottom Line
Everything you have today has probably not served to you on a silver platter. Thus, whether you’ve got multiple homes and diamonds in the safe or a small, simple house you share with your family, you must plan your estate as early as possible.
If you have dependents, this becomes even more important as it isn’t only about physical assets but also about who gets to raise your children. Don’t think of estate planning as a written list of wishes. So consult a professional estate lawyer to understand the best way to do this. Good luck with your estate planning.