Last Updated on February 21, 2021 by James Gentile
There are three inevitabilities in life: birth, death, and taxes. While the first generally happens without your input, the last two take careful planning and preparation throughout adulthood. An estate plan may be an uncomfortable topic, especially for individuals who anticipate many years of life left, but it is an essential part of preparing for the future. Even if you feel that you don’t have the assets to warrant the time and energy establishing a plan can entail, making arrangements for your estate is extremely important.
What Is an Estate Plan?
While the idea of an estate may bring to mind millions of dollars in the bank and extensive property holdings, but the reality is much simpler. In essence, your estate is composed of everything you own when you die, including bank accounts, investments, real property, and other items of value, like cars.
An estate plan outlines how the assets in your estate are to be handled upon your passing, including who will act as the executor, to make the process as smooth and straightforward as possible. Estate planning is unique to each individual and his wishes, ranging from drafting wills to establishing a network of trusts designed to facilitate asset distribution.
The Benefits of Estate Planning
A comprehensive estate plan provides you with the ability to make your intentions for your assets clear, eliminating any confusion or fighting within a family. Rather than limiting yourself to your state’s practices, you can set up a plan that works for you based on who you would like to include and how you would like them to access what you leave behind.
Estate planning simplifies the process once you are gone, taking the guesswork and the legal hurdles out of the way. Using vehicles like living trusts, irrevocable trusts, and charitable remainder trusts can help you allocate your assets in the best possible way to ensure everyone important to you is included. It can also be effective in tax planning, allowing you to make the most out of your applicable gift and estate tax exclusions to reduce your estate’s tax liability.
The Consequences Without a Plan
If you pass away without an estate plan in place, the distribution of your assets is at the mercy of the state. While this is not necessarily all bad, it takes away your ability to decide who should receive your assets and who should not.
Without an estate plan, state law will make all decisions for you, potentially leaving out important loved ones. Many states prioritize spouses and living children, excluding other blood relatives like siblings, parents, and extended family members if they are not considered primary beneficiaries under the law. Passing away intestate takes your control; those important to you will no longer have any say or be able to receive any assets if they are not included in the state’s allocation.
An estate plan may seem overwhelming, but it’s an essential part of your financial future. An estate planning professional can be precious, helping you understand your options and assisting you in implementing a plan that fits your needs. By determining how you want your assets to be divided and what you can do to ease the process after your passing, you can make sure all of your loved ones are covered in the best possible way, exactly as you see fit.