Who Needs Estate Planning?
“Estate Planning” might sound like something beyond your tax bracket. After all, only someone who can afford a yacht would call their earthly possessions an “estate.” However, the truth is that everyone has an estate. And estate planning is, in reality, important for just about everyone. For example, do you…
- Have someone who depends on you and your income?
- Have specific wishes about how you’d like to be cared for in the event of disability?
- Have plans for how you’d like to be put to rest after you die?
- Have any earthly possessions whatsoever?
- Have people who you love?
If your answer to any question above is yes, then you should concern yourself with estate planning. No one knows what will happen in the future. If you don’t make plans for what happens in the case of your death or disability, then you and your loved ones will be subject to the arbitrary rulings of the state.
Effective estate planning will:
- Minimize estate taxes and legal fees
- Ensure that your wishes are carried out
- Lessen the burden on your loved ones
- Make provisions for accident or disability
What Does Estate Planning Include?
Last Will and Testament
Good estate planning begins with a Last Will and Testament, but it shouldn’t end there. Unless you opt for a trust-based estate plan, your will is the legal document that will contain three essentials, including:
Who will be the executor of the estate, the person who settles your affairs and ensures that everything is enacted according to your plan. The will should also designate what their powers and access will be.
Who will inherit your property (as well as how and when it will happen.)
Who will be the guardian of your children until they come of age (if you have minor children, that is.)
If you opt for a trust-based estate plan, then you’ll still need a last will and testament to funnel your remaining estate into the trust to be dispensed according to your Revocable Living Trust.
Life insurance provides for your loved ones in the case of your death. It offers premium payments to compensate for the loss of your income, as well as a one-time payment, or “death benefit,” to help finance the considerations of burial as well as funeral costs, etc.
Life insurance can be helpful in alleviating the stress and pressure of your family in the case of your death. There are several different kinds of life insurance that you should consider when you’re planning your life insurance. Their coverage and costs are different, and which one is best for you will depend on your budget, the needs of your beneficiaries, and in some cases, whether you want it to help you build equity. The three major forms of life insurance are:
- Term life insurance
- Universal life insurance
- Whole life insurance
To learn more about life insurance, read here.
Trusts are commonly used in order to transfer funds to beneficiaries effectively. In the case of estate planning, trusts are usually used to avoid probate so that beneficiaries can avoid the time delay in the transfer and minimize estate taxes. Trusts can also be set up to provide for the needs of individuals who rely on the deceased. For example, a trust can provide for the care of a disabled child or loved one. Trusts can even be used to provide for a pet in the case of the owner’s demise.
Used effectively, trusts in estate planning will settle taxes and streamline the process so that your estate actually goes where you want it to go, instead of being eaten up by taxes and fees. Estate taxes run up to 40%, which can be a huge cost to take care of when your loved ones are already dealing with grief.
A living will differs from a last will and testament in that it outlines your wishes regarding your medical care in the case of accident and disability. A living will is sometimes also known as a health care proxy, and allows you to designate someone who will make healthcare decisions on your behalf. In most case, a living will comes into play if you are put on life support.