When someone hears about estate planning, they instinctively think it only matters for those who possess big properties, cars, boats, jewelry, and all that expensive stuff. However, with time, the meaning of estate planning has completely changed. It may have been like this before, but now every individual can take these services regardless of what they own and how much their possession’s original value is.
Everyone knows there is no guarantee of how long they will live in this world. You would not want their families to suffer after your demise in unexpected events. So, how will you confirm that your family gets all your belongings once you leave this world? This is where the need for estate planning becomes the most important. Only estate planning can ensure that your family members remain safe and that everything you leave stays with them only.
If you have the assets and individuals to leave them to, why not sign up for it? Let’s see the importance of estate planning and why you must make an estate plan for your family. But before that, let’s get familiar with what estate planning is.
Estate Planning: What Does It Mean?
Estate planning refers to everything you possess, including your residence, car, investments, furniture, bank accounts, personal possessions, life insurance, and other properties you own.
It’s like a road map you set for all your personal belongings. Through it, you can ensure that your wishes are carried out. It can be after your demise or when you are not in a state to make any decision. Did it sound like we are talking about a will? However, there is a significant difference between a will and an estate plan. While a will is a single term for defining a single legal document, estate planning is an umbrella term.
Since estate planning is an umbrella term, you can use it to describe various documents. It can cover everything from your health care wishes to how your assets must be distributed among your loved ones. It can even include the names of people who will care for your children and pets after your demise.
Giving a verbal justification for these things is never a great idea. You want to document everything from top to bottom, so your wishes are respected. Additionally, by doing this, your loved ones will not suffer because of your ignorance. If you don’t refer to estate planning while alive, then the probate courts and state law will take all your decisions after your demise. Because of that, it is highly unlikely that things will go in the direction you wanted.
Now, you know what estate planning is? Well, let’s continue our topic of the day by understanding the importance of estate planning.
Why Is Estate Planning Important?
Have you ever heard of legal limbo? It’s a situation where you don’t know what the end results will be. Someone who ignores estate planning their whole life can end up in this cycle. This is mainly because they never planned who would gain their assets rightfully after their demise. Without certainty about who will get what of your possession, your heirs can go through some unnecessary burdens.
However, you can easily avoid it if you plan the distribution of your assets. Also, estate planning can help you minimize estate, gift, and income taxes other than distributing your possessions to the right person. So, altogether estate planning is a win-win deal from every side.
And as we said before as well, you will have to let the courts decide who will get your assets and possessions in what amount, and deciding about your children’s custody will also be in their hands only. Besides this, many other things also increase the importance of estate planning. So, let’s explore them!
Estate Planning Is More Than Just A Simple Will
Let’s start with the most basic importance of estate planning. Estate planning has many parts, while a will is only the starting. People generally confuse estate planning and a will as the same things. However, you will find that there is a significant difference between them.
Well, yes, both will and estate planning have the same initial function of deciding how your assets and possessions will be distributed after your demise. However, estate planning covers much more stuff compared to a will, including
- A durable power of attorney allows you to appoint people with the right knowledge to make financial and medical decisions when you are not able to give those instructions yourself.
- Beneficiary designations will mention the names of the individuals who will receive money from retirement accounts, annuities, insurance policies, and the other financial accounts you own.
- Medical directives contain the type of treatment you will want for the times when you become immobilized.
- One or more trusts to ensure that your properties are passed on to your heirs only. It may even provide tax benefits to you and your beneficiaries.
Read Also:- Things To Look For When Choosing An Estate Planning Attorney
Estate Planning Saves Money As Well As Time
People are said to be intestate when they die without making a will. Per the rules, the laws of your state will determine the future of your possessions as well as who they will be given to. Coming to the main process, the probate court will pick a representative who will be responsible for distributing the assets you once owned.
In most common cases, your spouse is chosen as a representative. But what if you don’t have a spouse or family members who can perform this job successfully? In that case, the probate court will designate a public trustee, and they will be responsible for distributing the assets among your family members following the state law.
During the entire process, your assets will be frozen, and no one will be able to carry out your directives. All your assets will remain like that until the court goes through your estates, pays off debts, applies state laws, and decides how to distribute your assets among your family members or benefactors.
You should remember that the probate process consists of court appearances as well as paperwork, and the lawyer fees are paid through the estate only. This process runs on a continuous cycle and can take months and even years to conclude, especially in large cities. Now, as you can see, the whole process is pretty time-consuming. On top of that, the cost for the lawyer can be significantly high as more time passes. This can greatly load your family members, and you want to avoid that.
However, you can easily avoid this long-term process for your loved one by having estate planning. As estate planning includes:
- Placing the name of an executor for your possessions
- Ensuring all the investment accounts you possess have the right names for inheritors or beneficiaries in a living state.
Estate Planning Can Save Your Family From Big Taxes
Estate taxes are quite common, and people who own a lot of properties consider taking estate planning services for this reason. In most cases, only individuals with ultra-wealth face federal estate taxes. So, if you are not part of the ultra-rich people category, you don’t have to worry about federal taxes.
However, the case can be entirely different if we are talking about inheritance and state estate taxes.
Estate taxes are paid through the estates of the deceased person. Meanwhile, deceased person beneficiaries and heirs pay the inheritance taxes on the estate. There are some cases where the inheritance taxes are charged from the estate only.
The taxes paid to the federal or state government through your estate can be significantly huge. Therefore, in order to save on these taxes so your loved ones can get the most out of your estates, you can follow some simple strategies. The best way to save on estate taxes is to create joint accounts, set up trusts, and make irrevocable gifts.
This is a great way to remove your assets from the estate. However, remember, you need the help of an estate plan to succeed with these moves.
Estate Planning Confirms Your Children’s Safety And Future
Have you heard of cases where children were left without any family member or guardian because something unexpected happened with their parents? These types of cases are more common than you think. Suppose something unexpected happens to you, and you don’t have a surviving spouse or any other person to care for your children. So, what will happen to your children in that case, and who will get custody?
If someone doesn’t have estate planning, their children will get a legal guardian to care for their needs. And the probate court will appoint it. The court usually appoints the deceased family member, like a grandparent, as a legal guardian. However, even a family friend can file a petition to the court if they want to become your children’s guardian.
But, if the child has no surviving family members and no one else comes forward to become their legal guardian, the court will need to take further action. In such cases, the child will be part of a ward of the state, and their needs will be taken care of by the foster care system.
Want to decide who will take care of your kids after your death? In that case, you must mention the person’s name in your will. Furthermore, many even recommend adding the name of an alternate guardian, so if something happens to the first guardian, you know that your children will be safe with the other guardian.
Estate Planning Is Not Only About Your Family Member, But It Also Helps You
Understand that estate planning isn’t all about helping your family members after your demise. It can help you even when you are alive.
You should know that estate planning comes with a healthcare proxy as well as a durable power of attorney. These are crucial estate planning documents that make sure your wishes are being carried out in case you become incapable of handling things, whether temporarily or permanently.
With the durable power of attorney, you can select a trusted family member or friend to manage your financial and legal affairs for the times when you are incapable of doing so. Furthermore, a healthcare proxy is given to someone who can take healthcare decisions for you when you are incapable of communicating or telling your wishes.
These directives are commonly called a living will, where you mention the names of your loved ones who can take decisions for you in your place. Without this, things can become quite complicated since it will be hard to decide who will take action in your place. Don’t be surprised if you see some unfamiliar face taking decisions about your financial and health affairs. They may act differently from your wishes. Therefore, having an estate plan can save you from such scenarios and confirm your family as well as your safety.
What Are The Important Estate Planning Documents?
Looking into the importance of estate planning, one must consider what estate planning documents they may require for making an estate plan. Well, each estate plan can differ, but there are still some common estate planning documents that one requires to complete the entire process.
Here is the list of estate planning documents:
Last Will And Testament
In this legal document, you can mention how your estate must be distributed and who you would like to care for your kids, pets, and dependents after your demise.
Trust
There are multiple various categories of trust. However, in simple terms, it consists of the relationship between the trustor, trustee, and beneficiary. The trustor gives the power to the trustee to manage and handle its assets or properties, while the third party, aka the beneficiary, gets the benefits through it.
Living Will
Make sure you understand that a living will isn’t the same as the last will. In this, you mention your wishes for the time when you are terminally ill and taking your end-of-life treatment.
Health Care Proxy, AKA Medical Power Of Attorney
This document mentions the name of a person who can decide regarding your medical care when you are incapable of doing so.
Financial POA
Through this, you can appoint an individual who is capable of taking financial decisions on your behalf.
Beneficiary Forms
There are numerous assets like 401(k), life insurance, and IRA plans to which you can add the name of a beneficiary. By doing this, you can avoid the probate court path and directly pass the assets to your loved ones. Ensure to keep the name of the designated person up to date.
Life Insurance
You can add life insurance to an estate plan so in case some tragedy happens, your loved ones can survive without facing any problems. Your loved ones will be able to pay rent, replace lost income, and will be able to perform funeral and other expenses when you are not there.
Who Should Look For An Estate Plan?
After reading about the importance of estate planning, it may have become obvious to you that it is essential for everyone. If not for everyone, at least for those who want their decisions about financial and legal affairs to be carried out. Having a will is good, but a comprehensive estate plan is better. This is because it comes with beneficiary designations, health care directives, and power of attorney documents.
You should never assume that your estate distribution will be smooth after your demise. Fight between siblings over the distribution of their dead parent’s properties is way more common than you think. And also, even you may want to give your maximum estate to someone who actually cared for you in your tough times. So, making decisions about your estate while you are alive and capable is always a better idea. This way, your wishes will be respected, and there will be no dispute between your family members.
So, to answer the question about who needs estate planning, everyone must take it, regardless of how much estate they own and their age.
Cost Of Estate Planning: How Much Should You Pay For It?
After learning about this, your next concern will be how much you have to pay for estate planning. The cost of estate planning can vary depending on the amount of estate you own. If you don’t have too many assets to show, you can find free alternatives for an estate plan. However, what if your family size is huge, and you need to distribute your assets evenly? In that case, you should refer to professional services.
On average, a professional attorney may charge around $250 to $350 per hour. And the lowest price for estate planning services can go as low as $150 to $200. The more complex your estate planning needs are, the more you will require the help of a professional. While some flat charge rates for estate planning, some professionals will work with you on an hourly fee base.
Estate Planning With Nirva provides comprehensive estate plan services. We have professional attorneys who will help make your estate documents while helping you with your estate planning needs. Our plan includes many things you can check out by visiting our website.
To Sump Up
So, do you understand why estate planning is important and who needs estate planning? Estate planning is highly important for everyone. Even if you don’t have much for the estate, you can still use it, so your wishes are respected after your demise. Visit Estate Planning With Nirva for more information. For any queries, connect with us at:
Phone: 844-995-8155