We spend our entire working lives saving, planning, accumulating, and protecting in preparation for our golden years. And, if we plan it right, there will be something to pass along to the next generations so they can have even better lives. That’s the ideal plan for many people, yet few actually do the planning necessary to ensure it happens. In fact, the majority of Americans don’t do any kind of estate planning at all, which for many families can turn out to be a financial disaster leaving them worse off. The big misconception is that estate planning is only for the rich, but even the smallest estates can create a financial hardship for families if the proper steps aren’t taken to plan for their transfer after death.
What happens to your estate after you’re gone?
Absent a will or trust, your estate, which consists of all of your property, becomes a ward of the state. For at least a brief period of time, the state, operating through the probate court, will have complete control of your assets, except for those that pass to your beneficiaries by contract. The probate court will determine who will receive your assets according to the laws of the state. If you have children, the state will decide who will be their guardian.
If you owe money, the state will see that your creditors are paid before any of your family. Your family will need to pay all estate settlement costs including probate fees before receiving any assets. And, if you own a business, it will most likely not survive an estate liquidation. A state can hold assets in a probate proceeding as long as it needs to settle creditor and legal claims. Without a will or trust your family will have no say in the disposition of your property, and it will be the last in line to receive it.
One of the reasons people tend to avoid estate planning is they think it is too complicated, sophisticated or expensive, not to mention their innate desire to avoid thinking about their demise. To each of those points: It’s not complicated, it can be as basic as you need, it’s not expensive and it’s more about having your legacy live on. The way to think about estate planning is in terms of your goals for your family, like these:
- Securing the financial future of your family
- Providing the capital needed to pay immediate cash needs and settlement costs
- Passing on as much of your assets to your family as possible
- Ensuring that all of your wishes are carried out
- Avoiding the delays and costs of probate
- Ensuring the continuation of a business, and
- Providing a legacy for future generations.
Your essential estate planning tips
There are numerous tools and resources that can be applied to your estate plan. Which ones you need depends on your current family and financial situation, and how you envision your future. An estate plan is often implemented in stages, beginning with basic tools like a will, and then layering on additional tools as your situation evolves.
Here are the essential steps anyone with a family and assets should take to plan their estate, in order of their importance:
- Get a will. You can generate a will online or use LegalZoom.com for a couple hundred dollars.
- Assign power of attorney. Planning your estate is as much about what happens if you don’t die as it is about when you die. A power of attorney provides instructions to your family and the courts for managing your affairs if you become mentally incapacitated.
- Get a living will. For the same reason you need a power of attorney, which deals primarily with your financial affairs, you need a living will, or advance medical directive to provide instructions to your family and medical providers for your preferred treatment in the event you become terminally ill. Leaving this to guesswork puts an enormous emotional hardship on family members.
- Get a living trust. If you have any property, investment accounts or assets with appreciable value, you should consider transferring their ownership to a living trust. Once inside a living trust, your assets will pass to the trust’s beneficiaries outside of probate, making them immediately available (or distributed based on your specific instructions) to your family members. You can create a living trust on LegalZoom.com for as little as $600, a bargain considering the benefits for your family.
- Seek guidance. For most people, a simple will is all they need to ensure that asset transfer and guardianship are carried out in accordance with their wishes. Larger estates, especially those that have assets such as real estate (with less liquidity), may need additional planning tools that are best provided through a qualified estate attorney. An attorney can also be helpful in structuring your estate in a way that causes the least amount of friction between surviving heirs. For larger estates, an estate attorney can also advise on the best arrangement to help your estate avoid death taxes. As estate tax laws do change, it’s important to have your estate plan reviewed periodically.
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