1. It’s About More Than Just Your Stuff
When most people think of “estate plans,” they immediately think of divvying up their financial assets. But it’s so much more comprehensive than that. Your basic estate planning documents should include:
- Your Will: A legal document that specifies how your assets should be distributed after your death and appoints guardians for any minor children.
- A Trust: A legal arrangement where a trustee holds and manages assets on behalf of beneficiaries, often used to avoid probate and provide more control over asset distribution. There are two main types of trusts: living trusts and testamentary trusts. Living trusts hold property both before and after your death, while a testamentary trust only becomes effective after the grantor’s death.
- Power of Attorney: A document that grants someone the authority to make financial or legal decisions on your behalf if you become incapacitated.
- Healthcare Directive: An advance directive to spell out your end-of-life wishes that outlines your preferences for medical treatment in case you cannot communicate them yourself.
2. It Puts the Right People in Charge
Estate planning is also important because it protects those you love. One part of estate planning is appointing the key players who will step in if something happens to you. This includes:
- Protecting your beneficiaries: Having an estate plan protects beneficiaries, including your family members. Without a clear estate plan in place, your assets could be distributed according to state or federal laws, instead of your personal wishes.
- Protecting your children: If you have children or other people you are the primary caregiver to, estate planning is vital for designating guardianship in the unfortunate event of both parents passing away. By naming a guardian in your estate plan, you’re ensuring that your children will be cared for by someone you trust.
- Protecting your assets: Putting an estate plan in place involves appointing a trustee or executor to manage, and protect, your assets. In the worst-case scenario of your passing, you want to make sure that your assets are in the hands of someone you truly trust.
You want to choose people you trust implicitly to make decisions in your best interest. And it’s a good idea to have backup options too, just in case.
3. It Can Minimize Taxes
Let’s be real — taxes are unavoidable. But a solid estate plan can help reduce the amount your loved ones will owe after you’re gone. Here are a few methods to minimize estate taxes after your incapacitation or passing:
- Gifting your assets: The annual gift tax exclusion for 2024 was recently increased to $18,000 from $17,000 in 2023. Gifting can help reduce the value of your estate without giving up your lifetime gift or estate tax exemption.
- Think about charitable giving: Supporting philanthropic causes not only benefits others but can help lower the value of your estate (and lower your future estate taxes).
- Consider funding a 529: If you have children or grandchildren in your life, setting a 529 plan in place for their future educational expenses can help reduce the value of your estate.
4. It Puts You in the Driver’s Seat
If you don’t have an estate plan, the state you live in will essentially create one for you. And that means you have zero control over what happens to your assets and responsibilities. The courts will appoint an administrator, which can be a costly and complicated process for your loved ones. With a comprehensive estate plan, you get to call the shots. Planning ahead with an estate plan isn’t just about protecting you, but also protecting your loved ones from potential costly attorney fees or court fees.
You decide who will handle your affairs, how your assets will be distributed, and what happens if you become incapacitated. It’s the best way to ensure your wishes are followed and that your loved ones are taken care of. So, what are you waiting for? Whether you’re 25 or 85, talking to a financial professional about estate planning is one of the most important things you can do. It may not be the most exciting task, but it’s a gift you can give your loved ones. Trust us, they’ll thank you for it.
