Estate Planning 101: What Is It & Why Do I Need It?
Estate planning is the process of designating how your assets will be distributed in the event of your death or incapacitation. Many people plan out their estate to ensure that their assets are divided the way they want and not chosen by a probate court or given to whomever the state inheritance laws say. Others want to protect their loved ones from unnecessary financial or emotional hardship. Regardless of the reason, there are ways to benefit from estate planning but first, let’s understand why it’s important.
Why Estate Planning Is Important
Estate planning is important because it is the only way to ensure that your wishes are executed upon death. If you don’t participate in estate planning during your lifetime, then your assets will likely be given to the family members closest to you by the laws of your state. You may want to give certain loved ones something specific they wouldn’t otherwise receive.
Additionally, you can plan out what should happen to you if you become incapacitated and medically unable to communicate. Instead of putting life or death considerations and choices on someone you love, you can choose to make those decisions in advance, and the medical providers must honor your wishes.
Estate planning can also help you provide life insurance for your kids or name a guardian and how you would like your children to be cared for. It’s a layer of protection to those you love from not just the emotional hardship of your passing on but from financial struggles just because of your death.
Benefits of Estate Planning
Estate planning has many benefits that make it ideal to start at any time or age. The sooner you protect your assets, the more peace of mind you can have. Estate planning is legally binding and can help you get around some less opportunistic laws that your state might have. Here are some of the other great benefits of estate planning.
You Protect Your Assets
The main reason most people participate in estate planning is to make sure that the loved ones they have will be able to receive their assets without paying extra taxes or going through a third-party court. Your assets get passed down to the next generation without going through probate, which can be a financial and stressful burden to your loved ones.
You Protect Your Loved Ones
The last thing you may want is to have your child’s inheritance taken away or delayed because you didn’t provide specific instructions. Estate planning is a tool made to protect those you love from financial hardship. Still, it can also take an emotional, medical decision out of their hands by expressly stating what you want to happen in those circumstances.
An Estate Plan Can Have Tax Benefits
Estate planning in the right way can provide your loved ones with a lot of financial freedom from being overtaxed by inheriting assets. There are ways to decrease the income tax beneficiaries might have to pay. When you participate, you have the potential to remove a financial burden that is caused by inheriting money, cars, businesses, and more. There may also be other tax strategies you can use to minimize the impact on your beneficiaries.
Considerations When Estate Planning
Once you’ve decided to move forward with estate planning, several things need to be communicated and taken into consideration. Here are the most important considerations to think about before starting your estate planning process:
Understand your state’s tax laws: Not every state has the same inheritance and communication rules. You’ll need to understand the rules for your specific state if you plan out your estate properly.
Account for your family’s needs: If you plan out your estate, it is a good idea to understand better what your family needs so you can protect them. It won’t impact you when you die, but it could mean quite a bit of money or time to someone inheriting your estate.
Make sure you have enough life insurance: Life insurance can help protect your loved ones financially.
Name guardians for your children: Many parents want to know how their children will be taken care of in the event something happens to them. Estate planning helps you do just that and can even stipulate specifics on how you prefer the children to be raised.
Inventory your assets: It’s time to study and record every single inventory asset so that the process runs smoothly and quickly. If you’re estate planning, you don’t want to leave out any major asset that could slip into probate court. Assets include investment accounts, real estate, banking accounts, and more.
The Bottom Line
Having an estate plan is among the most important things you can do for your loved ones. It is, however, a task many of us dread and put off dealing with until later in life. If there is one thing we can recommend, it is that it is never too early to start planning. Estate planning can help your wishes be executed and protect your assets from probate. We know this is a heavy topic and one many may avoid, but in the end, we do it for our loved ones so they don’t have to make tough decisions.
