“I’m still young…”
“I don’t have any children…”
“I already have a will written…”
“My assets aren’t large enough to be called an ‘estate’…”
The list of reasons goes on for why nearly 80% Americans have not set up their own estate plan. In fact, only about half of American adults even have a will written to describe their wishes for what happens after their passing. However, an estate plan is more than just a set of documents that designate how your assets are passed down. Having an estate plan in place has a variety of benefits that extend beyond simple inheritance and they take into account factors that wills ignore, such as comprehensive planning for your different assets, protection for your business, and what happens if you are incapacitated.
If you are certain that an estate plan is not for you, take a moment to read the following 10 reasons why you should reconsider:
- Protecting Loved Ones – One of the main reasons why people choose to establish an estate plan is to protect their loved ones in the event of a tragedy. A general will may be able to pass down your assets, but there are a variety of other factors to consider to properly protect your loved ones that only an estate plan can address. For example, an estate plan allows you to designate a trustee to manage assets for beneficiaries who are minors. You can also set rules for how a beneficiary’s inheritance can be used, protecting them from their own poor financial planning or others who may take advantage of their inheritance.
- Avoiding Court & Probate – Probate is a long, costly legal process that the government uses to settle your estate – and one that should be avoided at all costs. Along with taking up your family’s time and money, the probate process can also expose your estate to public scrutiny. Information in the probate court is accessible to anyone, severely impacting your family’s privacy in their time of grief. Finally, the length of the probate process can end up freezing your assets for a year or more when your loved ones need access the most. An effective estate plan can minimize the process or avoid probate altogether, providing your family with the privacy and access they need.
- Reducing Tax Burdens – Estate taxes can impose a large burden on your assets and your loved ones after your passing. They can also vary depending on the mix of assets that you hold in your estate at the time of death. Proper estate planning can help to mitigate or even eliminate these estate taxes, ensuring that all your hard-earned wealth is passed on according to your wishes. Whether you set up certain types of trusts, donate assets to charity, or preemptively pass on certain assets before your passing, working with an expert estate planner can help prevent the government from taking the legacy you have worked your whole life to build.
- Avoiding Family Conflict – It’s a common movie trope: a family member passes on and the rest of the family devolves into bitter in-fighting over who gets what. In the real world, most families want to avoid pitting their loved ones against each other in a time of grieving. An estate plan allows you to examine all of the assets in your possession and the relationships you have, and then develop a strategy for how to best distribute those assets in a way that will prevent family conflict and court challenges. When you set up an estate plan, you have the opportunity to discuss those options with your beneficiaries and potential guardians, allowing you to settle disputes before they become full-fledged rifts in the family. Finally, a well-prepared estate plan will be legally sound and enforceable, ensuring that your assets are distributed according to your wishes and not according to the government or legal challenges from family members.
- Protection from Creditors – While your goal may be to provide your beneficiaries with a portion of your legacy after your passing, creditors may have other plans. If you do not have an estate plan in place, your beneficiaries’ creditors may be able to collect on their inheritance, leaving them with nothing. This is particularly detrimental when you want your assets to be able to provide for your heirs’ cost of living, medical expenses, or college tuition. The use of lifetime trusts, tuition savings accounts, and other financial vehicles developed in the creation of an estate plan can prevent creditors from taking your loved ones’ inheritances before they even have it in hand. An estate plan can also protect your children’s inheritance from the impact of divorce. In the event that you and your spouse decide to end your relationship, having an estate plan in place will ensure that any assets designated to go to your children will reach their destination, rather than being caught up in the split.
- Guardianship Planning – For parents, one of the main concerns that come up is who will care for their children should the unthinkable happen. While you may have a will that names a guardian in the event of your death, there are other considerations that are often not addressed in a standard will. For instance, if you have young children you may need to select a conservator for your assets to manage their inheritance until they are old enough to handle them appropriately. This is an important consideration, particularly if you are unsure about your guardian’s ability to handle your child’s inheritance in their best interest. You may also need additional guardianship selections in the event that your first choice is unable to take on the responsibility. Additionally, a will only identifies who will care for your children in the event of your death, which is useless if you become incapacitated (see #7). An estate planner will be able to help you prepare for all these eventualities, while also building flexibility into your plan should your needs or the needs of your children change.
- Incapacitation – Many Americans will encounter some kind of disability before their death, yet few have a plan in place to address that outcome. In the event of your incapacitation, there are several factors to consider, such as who will have control over your personal assets and who will retain custody of your children. Without an estate plan in place, your assets may be placed under the control of a legal guardian chosen by the state who does not have your best interests at heart. This leaves your estate, and your children, at risk of not being cared for according to your wishes. An effective estate plan will be able to anticipate this outcome and provide you with options to ensure that your wishes are carried out whether you are alive and incapacitated or have passed on.
- Charitable Giving – Many Americans choose to leave some portion of their estate to a charitable cause on their passing. However, simply naming a charity in your will leaves your philanthropic causes at the same risk of not receiving their full share as your loved ones. Through estate planning, you can set up several different methods to ensure that your support actually reaches your cause, such as a charitable lead trust that would provide that charity with donations during your lifetime and, after your death, would deliver the remaining balance to the charity. Discussing your desire to include charitable giving in your estate plan with your estate planner can also provide you with opportunities to donate before your death that can also benefit your estate today. For example, if you know that you want to donate a certain amount to charity, donating appreciated personal property will allow you to provide the support you wish while also avoiding capital gains taxes from the government. An added benefit to donating a portion of your estate to charitable causes is that it will reduce the amount of estate taxes levied on your estate, leaving more for your other beneficiaries.
- Protecting Your Business – Business owners need to consider what will happen to their business after they have passed. Whether you want your business to stay in your family, be passed on to your employees, or be sold and the proceeds delivered to your heirs, a comprehensive estate plan is the best way to ensure that your wishes are followed. With an estate plan in place, you can be certain that your business will continue uninterrupted in the event of a tragedy. A plan will also help you to minimize or eliminate the tax burden that your business may be strapped with after death, preventing your hard work from being diminished by the IRS in estate taxes.
- Legacy Planning – The estate planning process has an added benefit – it allows you to get a birds-eye-view of the total value of your legacy. This can help you in the present to figure out ways in which you can grow the value of your assets and it will help you to get a better picture of what you want to leave behind. In other words, you can determine exactly what mark you want to leave on the world. Regardless of whether your goals are for family longevity, philanthropic generosity, or to enjoy the majority of your assets’ value before your death, comprehensive estate planning will provide you with the insight you need to ensure that your legacy is one that you are proud to leave behind.
Estate planning may not be right for everyone, but there are a significant number of people for whom an estate plan is immensely beneficial, particularly for those with children, mixed assets, or detailed wishes for their estate. For more information on how you can get started on creating own estate plan and to receive a free Estate Planning Review Session, visit www.providentialaw.com, email us at clientservices@prolawpc.com or give us a call at (408) 560-7010.