What’s the Importance of Having an Estate Plan?
A well-prepared estate plan can benefit anyone, even those with no significant assets. An estate plan is essential for numerous reasons, including the following:
Protecting Your Loved Ones
You might be the primary breadwinner in your family or have several children you want to provide for after you’re gone. Estate planning can accomplish that by naming beneficiaries to receive your property when you die.
Protecting Young Kids
As a parent, you want nothing more than for your children to be happy and not struggle. Planning for the future means preparing for the unthinkable and unexpected. With an estate plan, you can choose a guardian to take on the parenting role if you die before your kids turn 18. If you don’t select a guardian, the court can appoint someone, and it might be a person you don’t trust to raise your children as you would.
Reducing Tax Consequences
The tax implications can be a significant problem when someone receives an inheritance. There are ways to reduce or eliminate estate taxes by including the proper documents in your estate plan.
Preventing Family Disputes
Misunderstandings, confusion, and hurt feelings can lead to arguments within the family. By carefully designating specific assets for specific relatives and explaining your thought process, you can prevent disputes about your estate when you die.
What Are the Elements of a Successful Estate Plan?
An estate plan is a map for your family to follow to fulfill your final wishes. The documents you choose to include will instruct them on how you want specific matters to be handled. You should incorporate the elements that safeguard your property, outline your preferred medical care, and explain what to do if you can’t speak for yourself.
The most important documents in an estate plan include:
- Last Will and Testament – Your last will and testament can do several things, including naming the beneficiaries for your assets and appointing someone to care for your children, a special needs adult, or your pets.
- Living Trust – With a living trust, you transfer assets into the trust and control them while you’re alive. The person you choose as your successor trustee will manage the trust when you die and distribute the remaining assets to named beneficiaries.
- Living Will – A living will differs from a last will and testament. Instead of defining your wishes for when you die, you communicate your wishes for end-of-life care if an accident or terminal illness causes incapacitation.
- Power of Attorney – A power of attorney authorizes a person you choose to manage your affairs if you can’t make sound decisions yourself.
- Parent Contingency Plan – You must plan who will take over your child’s care if you unexpectedly die or become incapacitated. With a parent contingency plan, you express your preference for who should be responsible for raising your kids.
What Is a Trust?
A trust is a fiduciary agreement between a grantor, who is the person who establishes the trust, and a trustee, who manages the trust. Typically, the grantor is also the trustee and appoints a successor trustee to take over upon death.
If you create a living trust, you have control over your own assets during your lifetime. You can transfer or remove property anytime and even revoke the document if it is a revocable living trust.
When you pass away, your successor trustee is authorized to manage the remaining assets held in the trust and transfer them to your beneficiaries according to your instructions.
One of the most significant benefits of a trust is that it avoids probate. That means your loved ones don’t have to wait for the court to validate your will to receive the property you want them to inherit.
What Is Probate Administration?
Probate is the process whereby a judge validates a will and approves the administration of the estate. The executor must enter the will into the probate court. Once the judge approves the will, the executor can fulfill their duties, including transferring property, paying estate taxes, and paying debts.
What Is a Guardianship?
If you have minor children, appointing a guardian is crucial. The guardian is responsible for raising your children after your death. You can name one or multiple guardians to share in the responsibility or designate a primary and secondary guardian if the primary guardian is unable or unwilling to fulfill their duties.
You should pick someone you trust to raise your child as you would. They should be a person who understands your parenting style, values, religious beliefs, and other essential aspects of your life.
You can leave behind documentation to explain how you want to handle specific decisions, such as education and medical treatment. You also might consider creating a trust the guardian can use to pay for essential expenses such as housing, food, and clothing.
You could also arrange for a guardianship for an adult who is dependent upon you and incapable of making decisions for themselves. A guardianship under these circumstances could be granted to the person who will make decisions regarding the ward’s daily care, living arrangements, and health matters.
What Is a Conservatorship?
Although similar to guardianship, conservatorship serves a different purpose. If you are deemed incapacitated and unable to manage your finances, a court can rule on conservatorship. That means someone else can manage your assets, buy or sell property, and handle financial transactions on your behalf.
What Is Estate Litigation?
Estate litigation is the procedure whereby disputes about someone’s estate are decided. Any will contests or lawsuits brought against the estate or the executor of the estate will be decided by a court.