You can’t avoid estate planning, as it helps secure your family’s future. If you are someone who thinks estate planning is limited to managing your finances, you are making a big mistake. It has numerous things, from managing your assets to securing your children’s future in your absence, and the list continues. Many individuals understand that estate planning is important but still have many questions about it. One of the popular questions among the masses regarding estate planning is: what is the purpose of estate planning? Surely you also want to know why you need to do it when you can make a will. Furthermore, how is estate planning different from a will, and who needs estate planning? Is there any way to know which estate planning is best for me? And, lastly, what mistakes should I avoid while planning my estate?
If your concerns about estate planning are somewhat similar to what we mentioned, then you are at the right place. Estate planning is surely a daunting task, but it can be simplified when you know the ins and outs of it. So, noting that, let’s see what estate planning is all about and what’s its main purpose.
What Is Estate Planning?
To understand what estate planning is, let’s take the example of a home guard. Suppose you are a working individual with a family consisting of two children and a wife. You visit your workplace on weekdays and reach home late at night. During this time, as a caring husband and father, you would want someone to protect your family’s safety. For that reason, you would hire a home guard who looks after your house and family and protects them from any danger.
The same thing is true for estate planning as well. In simple terms, estate planning involves managing the things you own, like your assets and stuff, when you’re incapable of doing it yourself. After your demise, estate planning ensures that things are distributed among your loved ones the way you want. There will be no expectations, and everything will go as per your Will.
Before you consider estate planning, you should know what things you own in the first place. Thus, it will be easy for you to arrange things and avoid missing out on not adding things you own to your Will. So, know that your estate consists of properties and assets you own, including:
- Retirement accounts, etc.
Once you know what things you have to include in your estate, you will find planning much simpler.
What Is The Purpose Of Estate Planning And What Is Its Importance?
While you are in the process of estate planning or thinking about it, this question may have hit your mind regarding the what’s the actual purpose of estate planning. As we mentioned, it’s a way to secure your assets and other properties for your family members when you’re no longer with them. However, that is one of the purposes of estate planning. If we primarily talk about the main purpose of estate planning, then it will be probate avoidance.
Now, not many of us are familiar with what probate stands for. Furthermore, you may also want to know the reason for avoiding it. Well, don’t worry since we are here to answer all your queries. Basically, probate stands for the court process that consists of distributing an individual’s assets or properties upon their demise. The distribution process is based on that person’s Will.
You should know that probate takes a long time, is expensive, and is public, and you will not have any power to change the outcomes. The individuals who will inherit your assets, a.k.a. beneficiaries, will have to go through this year-long (sometimes even more) process. Furthermore, there will be many unnecessary expenses and hurdles your loved ones will face throughout this process.
It may come as a surprise, but probate fees normally cost about 3% to 5% of your estate. Now, this all means one thing only, i.e., avoiding probate is a must. So, this was one of the primary purposes of estate planning. Knowing its importance, let’s explore more about estate planning.
Read Also:- What Does An Estate Planning Attorney Do & Why Do You Need One?
Some Basic Elements Of Estate Planning And Getting Started With It
Considering estate planning’s importance, there are many reasons to consider it. However, one of the best parts of estate planning is you can choose how things go for your family after your death. Failing to plan your estate can lead to many problems, one of the most common being fights between family members. You can secure your children’s future and who will take care of them after your death if you have estate planning with you.
Also, we can’t forget how planning can save your beneficiaries from big taxes. All in all, you need to ensure things run exactly as you envision them. And doing this will lead to lesser misconceptions, questions, and misunderstandings.
So, in order to do estate planning optimally, you should consider the following, so you don’t fail at any step.
Starting With Estate Planning: What Are The Important Estate Planning Documents?
Now, you know the purpose of estate planning and why estate planning is important for you. So, if you are convinced, you may look forward to the documents required to complete this process. Know that there are multiple documents you will need to plan your estate in the right way. All of those documents have an important role in ensuring that your wishes are carried out after your demise.
People often confuse a will with estate planning. However, a will is part of a legal document for this planning. This document consists of your last wishes, in which you mention how you want to distribute your assets and properties among your family.
Suppose you have children or other family members you want to care for. In that case, you will want to appoint a guardian for them. That guardian will take care of your family members after your demise or when you are incapable of doing so. In most cases, the guardianship instructions will only be mentioned in your Will section.
A trust is also an essential part of estate planning. So, this legal document includes naming a trustee that can manage your assets according to your wishes after your demise or even during your lifetime. Here, your role is as a Grantor or Trustor, and the individual(s) to which you want to distribute your assets and other properties is known as the beneficiary.
Financial Power of Attorney (POA)
This document includes you naming a person who is able to handle your financial affairs on your behalf.
Advance Healthcare Directive (AHCD)
AHCD is often called a Medical Power of Attorney or a Living Will. In this document, you can mention what type of medical actions must be performed in case you cannot make those decisions for whatever reasons.
Although these three terms are used interchangeably, they have some distinctions in legal terms. You can mention your medical preferences in a living will, specifically your end-of-life decisions, such as life support. For a Medical Power of Attorney, you can designate a person who can take your healthcare decisions when you are incapable of doing so. An AHCD is the combination of both Medical Power of Attorney and a Living Will. So this way, you can give instructions as well as designate a person to make your medical-related decisions.
Durable Power of Attorney (POA)
This document gives the legal right to a person of your choice to handle your non-medical and non-health affairs. This document is a variant of a Financial Power of Attorney. Here, the word “durable” signifies that the power of handling your finances remains with that person even when you become immobilized or incapacitated.
This document is there for you to give your consent about sharing your medical information and records with a third party.
Looking To Create An Estate Plan? Follow These 12 Simple Steps
Without a doubt, when you consider estate planning, you will have to pass through many steps. However, you don’t have to get overwhelmed since we have made the planning process easy with the following 12 steps.
Step 1: Gather Your Properties And Assets
The first step to an estate plan is to organize your properties, assets, or everything else you own that is worth some value. It can be your home, car, jewelry, etc.
Step 2: Consider Your Family Protection
After your demise, you want to make sure that your family can maintain the same lifestyle they had in your presence. So, to do that, you need to check whether your life insurance is adequate or not.
Step 3: Choosing The Best Estate Plan Out Of All The Choices
The third step to a perfect estate plan is to decide which estate plan type will be best for you so your loved ones can get the best out of it. Not sure what type of estate planning will be best for you? Keep reading, as we will cover that part later in this blog.
Step 4: Assigning A Guardian For You And Your Children/Pets
Choosing a guardian becomes a must for a person who has children, pets, or people out there that they love but cannot care for themselves. Furthermore, you should be prepared with names of individuals you trust for making medical and financial decisions when you can’t do it yourself.
Step 5: Establishing And Determining The Important Directives
There is not one but multiple directives a person must include in their estate plan. There can be more, but the main ones include the following:
- Medical Power of Attorney
- Durable Power of Attorney
- LPOA or Limited Power of Attorney (less common but can be great in a few instances)
Step 6: Mentioning The Names Of Your Beneficiaries
For not all your accounts or documents, you have to mention the names of your beneficiaries. Some of them already have the name of beneficiaries in them. For example, your life insurance policies, retirement plans, etc. However, for the other assets and properties you own, you need to mention the names of the beneficiaries in your Trust and Will. This is mainly when you want your assets to be given to some specific person in your family.
If possible, you should not refrain from naming a contingent Beneficiary. They are individuals who are next in line to your primary beneficiaries in case they are not present to collect your assets and other properties. Just keep one thing in mind, Beneficiaries can only come into action after your demise. So, suppose you are in a state where you can’t make a decision or are incapacitated. In that case, you should be prepared with more, and not just naming beneficiaries.
Step 7: Look For A Partner You Can Trust
When you are looking forward to creating your estate plan, you should try to look for all the options you can. There are many online estate planning services that are highly convenient as well as affordable, like Estate Planning With Nirva. Or, you can always choose a face-to-face conversation with an attorney if that is your preference. Although you have a variety of options, you must look out for the cost, as the expense can vary greatly between different estate planning services.
Suppose you don’t have too much of an overly complicated estate. In that case, you can choose Will and Trust as your trusted partners. They can be the right answer to starting your estate planning journey.
Step 8: Start Working On Creating Your Plan
So, have you decided to use online estate planning services like software or programs to structure your estate plan? In that case, ensure to follow all the instructions and steps, so you can finalize your plan without spending any extra time on corrections and errors.
Step 9: Notarize And Sign Your Estate Plan
Before you proceed any further, make sure to check the number of witnesses required by your state.
Step 10: Let The Executor Know Your Wishes
Letting the person who is playing the role of Executor in your Will know about your intentions is always a good idea.
Step 11: Place Your Estate Planning Documents In A Safe Location
If you don’t want your loved ones to suffer much after your demise, it is recommended that you put your estate planning documents in a safe location. This way, your family will be able to find the documents when the time comes. You can go for a fireproof safe if you want to guarantee the safety of your estate documents.
Step 12: Keep Updating Your Estate Documents From Time To Time
Well, in general, there are not any rules that tell you when is the right time to update your estate planning documents. However, you can come up with changes whenever there is a major change in your life. These major changes can be the death of a person who was part of your plan, childbirth, divorce, marriage, etc.
Individuals who don’t face such major life changes can go through their documents every three to five years. This way, you will remember what you have mentioned in your estate documents and whether you need to make any updates to them or not.
Who Should Consider An Estate Plan?
Although till now we have mentioned the importance, purpose, and benefits of estate planning, we have yet to discuss who actually needs an estate plan. Well, to answer you in the most simple way, everyone requires having an estate plan.
You may have convinced yourself that you don’t need estate planning. However, in reality, estate planning is a need for everyone, and you should not avoid it at any cost. It’s more about securing your and the future of your loved ones. So, if you think you don’t need estate planning, it’s time to think again.
You don’t have to seek validation to have an estate plan, particularly. There is not any particular rule that says you have to be elderly, wealthy, or have some set amount in your bank account to sign up for estate planning. Furthermore, if you’re 18, you can start thinking about making a plan. For people who don’t own big assets, estate planning is still helpful as it offers you the guarantee of your wishes being carried out after your demise.
If we take an example, the best one would be your healthcare wishes and health directives. Estate planning is there to speak when you can’t make decisions for your health yourselves. This way, your loved ones will know about your decisions and plan, so they have to take it themselves or doubt their decisions later.
In old times, you may have had to spend thousands of dollars for estate planning. However, now you have many options where you can easily get a legal, affordable, valid, and effective estate plan. So, estate planning is always a good idea whether you own big assets or not.
How To Know Which Estate Planning You Need?
Till now, you may have understood why you should opt for estate planning. With this, you also need to know which estate planning will be best for you. As estate planning is a vast term, you have to see what your needs are in order to make a complete plan. Having a talk with an experienced attorney can let you know what things to add to your plan.
In normal cases, your estate plan will cover wills, trusts, living wills, powers of attorney, bank & stock accounts, gifting, real properties, and so on. If we jump deeper into estate planning, it can also include Medical planning, tax planning, etc.
What Are The Common Estate Planning Mistakes You Should Know About?
Estate planning can be complicated, which increases the chances of you making mistakes while executing the planning. And with these mistakes come inaccuracies, delays, as well as different other misunderstandings. However, we are here to help you prevent mistakes while estate planning. Let’s see some usual mistakes in this process which you should avoid.
- Not owning an official plan
- Avoiding updating the estate documents over time
- Not having any plan related to long-term care or disability
- An improper order to assets ownership
- Avoiding including charitable gifts
- Absent of guardian for children or other people you love
- Underestimating taxes implication
- Not having assets liquidity
- Failing to use tax advantages in lifetime
Estate Planning Vs. Will: Making The Right Choice
Surely, having a Will is a great decision. However, you should not limit your choices to a Will only. It is just a part of one of the legal documents needed in estate planning. For your family’s safety and to guarantee their future, you have to include every nomination, document, as well as the appointment. You must follow this procedure to have a confirmed safe future when the time arrives.
So, from what is the purpose of estate planning to what mistakes you should avoid while estate planning, we have covered everything in the blog. Now, you know that only benefits come with estate planning, and there is no harm in it. Every adult must consider estate planning, even if they don’t own big assets or bank accounts. Estate planning is for everything, and you should definitely consider it to safeguard your and the future of your loved ones.
Estate Planning With Nirva makes estate planning a simple, straightforward process. We believe you don’t have to spend big bucks or meet an attorney to set up your documents and plan things. In our comprehensive package, you will get everything that is needed at affordable rates. No longer delays and waiting for days when you can draft your estate documents at home. Simply answer a few questions and get a complete and effective estate plan!
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