Everyone has an estate, some with less and some with more than others. Your home and other properties, bank accounts, life insurance, investments, furniture, artwork, cars and other personal possessions constitute your estate.
No matter how modest or extensive your estate is, it pays to have a plan to manage how your possessions are distributed to the people or institutions/organizations you care about in the event of your incapacitation or death. This is called estate planning.
In simple terms, estate planning is drawing up specific instructions on how you want your assets preserved, managed and distributed after your death. Estate planning also covers arrangements on how your assets and liabilities are managed in the event of incapacitation.
A well drawn up plan ensures that your loved one’s needs are provided for. It provides a clear map that includes:
The following steps will help guide you in drawing up an estate plan that works for you, no matter how simple or extensive your estate is:
Draw up a plan that is best for your situation and for your family by preparing these essential estate planning documents:
Last Will And Testament:
This all important document states in clear terms how you’d like your property and assets distributed after you have passed away.
In addition, the last will and testament designates your executor who will ensure that your instructions are carried out.
If you have minor children, this document also allows you to name a guardian for them.
The living will outlines the medical care you wish to be administered to you should you become terminally ill and on life support systems.
Sometimes called a health care proxy, this document likewise allows you to designate a person to be your health care agent who will carry out your wishes as stipulated in your living will.
Financial Power of Attorney
In conjunction with the last will and testament, the Financial Power of Attorney allows you to designate a person to manage your estate, including financial decisions, if you are unable to manage it yourself.
It is important to have two POA documents, one for financial affairs, and one for medical.
People planning their estate also often choose to make a living trust. This legal document designates a person called a trustee to manage an individual’s assets for the benefit of the eventual beneficiary or beneficiaries.
The living trust enables your estate to avoid the expensive and often complicated process of the probate court.
It allows for easy transfer of the trust creator’s assets to his/her beneficiaries while avoiding the probate process - one that can take up to three years for resolution and cost as much as 10% of your estate’s value.
Why You Need An Estate Plan
Many people put off estate planning, largely because thinking about death is difficult. Some people find no need for it because they think they do not own enough.
Some people think that they are too young and there will be time later for estate planning. Still some do not plan because it seems complicated and do not know who to ask for help.
And of course, there are some people who put it off because they feel an estate plan is morbid.
But what happens to your family when you unexpectedly pass away without a plan?
Here are reasons why an estate plan is important:
It protects your beneficiaries. If you don’t designate heirs for any assets you own, you cannot control who receives your property when you pass away. Without an estate plan, the courts decide who gets your assets.
It’s a process that can take years and is often very costly. It can become messy with family members squabbling over your assets.
It protects young children. An estate plan will ensure that young children you leave behind are cared for in a manner that you want for them.
With a plan, you are able to name a guardian (in the event that both parents die before they turn 18). Without a plan, the courts will decide who will raise your children.
It avoids a mess. Stop family fights even before they start. With an estate plan, you can designate someone to control your finances and assets after you pass away or otherwise become mentally incapacitated.
It protects your heirs from tax burden. Through estate planning, you protect against significant loss of your estate through estate and inheritance taxes. In addition, there are also several ways to reduce the income tax that beneficiaries might have to pay.
Going without a plan, your heirs will have to pay a substantial amount of taxes to the government to enjoy their inheritance.
And by that time tax cuts have been imposed, there may not even be enough to enjoy.
It is Never Too Early to Plan
Many families are caught off guard with an untimely demise of a loved one or a tragic event that causes mental incapacity. Therefore, it is never too early to have an estate plan in place.
And it need not be expensive, either. The important thing is to have something in place now. It may mean a will, a term life insurance, a living trust, and powers of attorney for whatever assets you own, as well as health care decisions.
As we have mentioned above, you need to review your estate plan periodically to assess if it still addresses your needs and meets your goals.
An estate plan can give you and your family peace of mind.
Leeward Wealth gives you expert advice on estate planning that will protect your assets and your beneficiaries in the event that something happens to you, and we will work hand in hand with your estate attorney who will ultimately draft the legal documents.
Call us today for an estate planning assessment.