Estate planning is fairly easy to do. That said, it is also very easy not to do (as evidenced by the statistics on the subject). Therefore, it is helpful to understand the reasons why putting together your estate plan is so important. Awareness of the importance of estate planning can help propel you into action.
Investopedia’s recent article, “4 Reasons Estate Planning Is So Important,” says you should consider the following four reasons why you should have an estate plan. According to the article, doing so can help avoid potentially devastating consequences for your family.
An Estate Plan Keeps Your Assets from Going to Unintended Beneficiaries. Families need to plan in the event something unfortunate happens to a family’s breadwinner(s). A primary part of estate planning is choosing heirs for your assets. Without an estate plan, a judge will decide who gets your assets based on state law. The process can take years, and may become quite heated. In the end, there’s no guarantee the judge will order what you may have intended in your own mind, so it is important to document your wishes through a legally binding will or living trust.
An Estate Plan Protects Young Children. If you are the parent of minor children, you need to name their guardians (i.e. backup parents) to step in and legally care for your children in the event both parents die before the children turn 18. Without including that in your will (in most, but not all states), the courts will make this decision for you. Similarly, you need to name people who can legally manage and look after assets that you leave behind for your children (such as life insurance proceeds or an IRA or 401(k) account). Otherwise, the court must choose a guardian to appoint. The takeaway here is, you know best who should (or should not) fulfill these roles. Make sure and do so in a legally binding document. Also, in most cases, I strongly recommend that trusts for minor children be included in the estate plan so the assets can be managed privately and without court oversight. We can create asset protection for the children in those trusts as well (from divorces or creditors for instance) but the language must be drafted properly to accomplish that. It’s critical that you include the advice and guidance of a caring and experienced estate planning attorney.
An Estate Plan Eliminates a Potentially Large Tax Burden for Your Heirs. Estate planning means protecting your loved ones—which includes providing them with protection from the IRS and from property tax assessors in your local county. Without a plan, the amount your heirs will owe the government could be substantial. Therefore, your estate plan should transfer assets to your heirs and create the smallest overall tax burden as possible when considering the following tax systems:
Federal and State Estate Taxes
Capital Gains Taxes
Income Taxes
Property Taxes
An Estate Plan Reduces Family Headaches After You’ve Passed. There are plenty of horror stories about how the family starts fighting after the death of a loved one. On my first day of Wills & Trusts class in law school, Professor Phil Wile told us about how we were going to learn the extent of human greed. Fortunately, you can help avoid that happening between your loved ones by creating your own complete and legally binding will and trust. In those documents, you will specify who will manage and control your finances and assets after you die while your affairs are being wrapped up. Then, the documents will specify who will receive your remaining assets, when, and how. That all goes a long way towards eliminating family strife and making certain that your assets are handled in the way you want, and in a way that is most beneficial considering your personal family situation.
If you want to protect your assets and your loved ones after you’re gone, you need an estate plan. Without one, your heirs could face large tax burdens and the courts could decide how your assets are divided or who will care for your children. Again, be sure and seek the advice of an experienced wills and trusts attorney who works exclusively in the area of estate planning so you can be sure and receive the most bang for your buck when creating your estate plan.
Reference: Investopedia (May 25, 2018) “4 Reasons Estate Planning Is So Important”