The Connection Between Estate Planning and Peace of Mind
What Is Estate Planning?
All of the things you own, such as a vehicle, a house, other real estate, bank accounts, investments, life insurance, furniture, and personal belongings, make up your estate. No matter how big or small, everyone has an estate, and they all share the same fate: everything survives the death of its owner.
A person’s estate should be planned for in such a way that their assets are protected, their affairs are handled, and their belongings are shared out fairly after death. A person’s assets and debts must be taken care of in case they become unable to do so themselves.
Any assets held solely in your name at the time of your death without a beneficiary designate or other governing contract will be divided in accordance with the intestacy laws of the state in which you reside, often via a court-supervised probate. If you are married and have children, your spouse and children (even if they are from a previous marriage or are no longer minors) may be entitled to a portion of your estate.
This implies that your current spouse stands to inherit a much smaller portion of your fortune, which may not be enough to support them. If your children are still minors, the court will decide how their share of the estate is distributed. If both parents were killed in an accident, for example, the court will select a guardian without considering their wishes.
Estate Planning Basics
There are several aspects of your estate that should be addressed in your estate plan. The following aspects should be considered:
- In the event that you become disabled before your death, your loved ones will need to know how to handle your care and your finances.
- In case you become unable to work because of an illness or injury, disability income insurance can help replace your income; long-term care insurance can help pay for your care in the event of an extended illness or injury; and life insurance can help provide for your family if the unthinkable happens and you pass away.
- You should plan for the eventuality of your retirement, disability, incapacity, or death by making provisions for the transfer of your business.
- You should appoint a legal guardian to manage your underage children’s assets and make decisions on their behalf.
- You should be able to take care of loved ones with special needs without jeopardizing their eligibility for aid from the government.
- Your estate planning should shield family members from financial harm in the case of a divorce or bankruptcy or in the event that they are financially irresponsible.
If you want to save money on taxes, legal expenses, and probate, you should: Put your assets into a living trust; complete or update your beneficiary designations; and align your assets with your estate plan.
Working With An Attorney Or Financial Advisor
When creating an estate plan, it’s recommended that you consult with a lawyer and potentially a financial advisor. The attorney’s job is to help you draft the documentation necessary for basic estate planning. A will, a health care proxy, and a power of attorney are all examples. In case there are any tax implications, your financial advisor can assist you to sort them out.
You’ll have to make the big decisions, but your lawyer and financial advisor can help you weigh the various factors at play. They’ll aid you in making your intentions known, avoiding costly blunders, decreasing your tax liability, and modifying your plan as time passes and your life changes.
The money spent on hiring an attorney or financial advisor may pay off in the long run, since careful, well-informed preparation can lead to substantial cost savings.
You should include taxes in much of your estate planning. In the end, you should leave as much as possible to your loved ones. It is possible to succeed by planning ahead and taking measures to reduce the amount of money you lose to taxes. Your estate plan should include provisions for avoiding probate and passing on assets in a tax-efficient manner. It’s crucial to be aware of the many taxation considerations that may arise. There are three common types of tax that are usually applied to estates:
Estate Tax: A tax levied on estates worth more than a certain amount. The tax is only levied on the amount that exceeds the ceiling, not on the full estate value.
Inheritance Tax: A tax paid by someone who inherits property or money from a deceased person.
Gift Tax: A gift tax is a tax levied on gifts that exceed a specific financial level. It should be noted that any tax is the responsibility of the donor, not the beneficiary.
Most Common Estate Planning Documents
Your estate plan will consist of many documents. Each is significant in its own right, and when combined, they constitute a powerful picture of your dying wishes.
Declare what you want to happen and who you want to care for your children or any other dependents you’re accountable for after your death or if you’re unable to care for them. Guardianship instructions are often included in a part of your Will.
A legal document that expresses your last wishes for distribution of your property or other assets.
A legal three-party fiduciary arrangement in which the first party (the Settlor, also known as the Trustor or Grantor) grants the second party (the Trustee) the power to hold assets and property on behalf of and for the benefit of the third party (the Beneficiary).
Financial Power of Attorney (POA)
An official document that designates a trusted individual to manage one’s financial matters.
Durable Power of Attorney (POA)
A variant on a Financial Power of Attorney, which is a document that grants another person legal authority over your non-health or non-medical matters. “Durable” merely implies that the POA stays in effect even if you become incapacitated.
Advance Healthcare Directive (AHCD)
Also known as a Living Will or Medical Power of Authority. An Advance Healthcare Directive (AHCD) specifies what medical measures, if any, should be performed if you become incapacitated and unable to make your own choices.
Note: While the phrases “Living Will,” “Medical Power of Attorney,” and “AHCD” are usually used interchangeably, there are legal differences between them.
- A Living Will allows you to state your medical wishes (typically for end of life decisions, like life support).
- A Medical Power of Attorney allows you to appoint someone to make healthcare decisions on your behalf if you are unable to do so.
- An AHCD combines a Living Will with a Medical Power of Attorney, allowing you to express instructions while also designating someone else to make decisions on your behalf if necessary.
Consent you give that allows your medical records or information to be shared with a third party.
Who Needs an Estate Plan?
Short answer: Everyone. It is all too simple to try to convince yourself that you do not need an estate plan. However, the fact is that we would all be better off if we planned a bit more for our future. To demonstrate the need for a comprehensive estate plan, you do not need to be affluent, old, or even have a specified amount in your bank account. If you are above the age of 18, you should consider making an estate plan.
Even if you don’t have a lot of assets, having an estate plan ensures that everyone knows what your wishes are. Health directives and long-term healthcare requests are great examples of this – if you become incapacitated and unable to communicate your preferences; your estate plan will speak for you, so your loved ones don’t have to make difficult choices or speculate about what you might want.
It used to be that correctly compiling the documentation that comprise an estate plan could cost you thousands of dollars. However, you now have alternatives. You may get an economical, legal, effective, and legitimate estate plan that guarantees your desires are carried out should the need arise. Even if you don’t have a lot of assets, creating an estate plan is a great idea.
Let Us Help You Plan Your Estate To Ensure A Worry-Free Future For Your Heirs!
Content provided by Paradox Media.
This information is not intended to substitute for specific individualized tax, legal, or investment planning advice. Neither Royal Alliance Associates nor its representatives or employees provide legal or tax advice. If legal or tax advice or other expert assistance is required, the service of a currently practicing professional should be sought.