Investopedia defines Estate Planning as:
“The preparation of tasks that serve to manage an individual's asset base in the event of their incapacitation or death.”[1]
Many people incorrectly believe that they do not need an estate plan, however, if you have an estate, then you need a plan. And almost everyone has an estate. Your estate consists of everything you own including your: personal belongings, vehicles, investments, bank accounts, life insurance, retirement accounts, and anything else you own.
Oddly enough, everyone also has an estate plan. The question is who drafted it? If you have taken the time to draft your own estate plan, then your assets will pass as per your wishes. On the other hand, if you have not done any estate planning, then you will have died intestate which means that your estate will pass per government statutes that will determine whom your assets will go to. Call me crazy, but I believe you can do a better job than the government dictating who will get your assets when you pass away.
Here are seven reasons why you would want to set up in estate plan:
1. Allows you to avoid probate:
Depending on the amount of assets your own, your estate may have to go through probate before getting to the ultimate beneficiaries. Probate is a very expensive process that involves attorneys and courts. It will ultimately be the courts who determines who will get what if your estate goes through probate.
Furthermore, probate is expensive and very time consuming. The hassle of probate is the last thing that your beneficiaries want to go through when you are gone. A good estate plan will allow your beneficiaries to avoid probate so that all your assets pass with as little expense and hassle as possible.
2. Allows you to choose your beneficiaries:
Estate planning lets you choose whom your beneficiaries are going to be. As noted earlier, if you do not make these choices, then the government will be more than happy to make them for you. Unfortunately, if you do no estate planning at all, then the government’s estate plan becomes your default.
3. Allows you to choose how your beneficiaries receive your estate:
There are several reasons why you may not want your estate to be immediately passed to your beneficiaries upon your demise. If one of your beneficiaries has a disability and is collecting disability insurance, receiving an inheritance in the wrong way may cause them to become disqualified for their payments.
You may have a child who you are worried will blow all your assets the moment they receive them. If you have been married multiple times, you may not want your
current spouse to be the recipient of all your estate When you pass away. Furthermore, you may not want your current spouse to have the power once you're gone to be able to disinherit your children from a prior marriage. By setting up a proper estate plan, you can ensure that your beneficiaries get your assets in the manner that you intend for them to be distributed.
4. Allows you to choose someone to make your financial decisions if you're incapacitated:
Estate planning is not just for when you've departed this planet, but it is very relevant for the here and now as well. If you become incapacitated, who do you want to make your financial decisions on your behalf? If you have not taken the time to have legal documents set up in which you have chosen who these individuals will be, then someone will have to go through the conservatorship; a process through which the courts choose someone to legally make decisions on your behalf. This process can take months and cost tens of thousands of dollars. On the other hand, for a few hundred dollars, you can draft your legal documents now so that if you ever do become incapacitated, you have already pre-chosen the individuals you want to make these decisions.
5. Allows you to choose someone to make your medical decisions if you're incapacitated:
The Health Insurance Portability and Accountability Act (HIPAA) make it illegal for medical personnel to give information about you to anyone other than yourself without your expressed consent. Therefore, if you are in an accident or have a major medical condition that renders you unconscious, emergency personnel (doctors, nurses, police officers, firefighters, paramedics, etc.) are prohibited from providing any medical information about you to anyone else, including a spouse or adult children!
Can you imagine anything worse than learning that a loved one is in the hospital because of a car accident, and you can't get any information because they never set up the proper documentation? By setting up an advanced healthcare directive, you get to make the decisions ahead of time as to who will make your medical decisions for you during a time of crisis. Even if you don't have the need for any other type of estate planning, every person over the age of 18 should have an advanced health care directive. And if you have already set one up, congratulations, but don't forget about your kids.
6. Reduce or eliminate estate tax:
Although this won't apply to most people, If your estate is large enough, your beneficiaries may have to pay estate taxes. Under present law in 2022, if you pass away within estate of more than $12.06 Million, your beneficiaries will have to pay an estate tax on the excess amount that could reach as high as 40%. Setting up a proper estate plan will help you dramatically reduce or possibly eliminate this tax altogether.
7. You’ll save money:
Having an estate plan will save you a ton of money. Sometimes, people will tell me that they will be dead, so they don't really care what happens to their estate. Of course, they're usually joking. However, the money that's going to go to the
attorneys and courts is still your money even though you're no longer with us.
You're the one that sacrificed and worked hard for it, and I’m sure you would rather spend it now then have it spent needlessly on court and attorney fees that could have been avoided. For most people, setting up a good estate plan will cost them less than a few thousand dollars. Without an estate plan though, it may cost your estate tens of thousands of dollars that would have been better spent on you while you were alive.
"Having assisted thousands of retirees with setting up their estate plans, I find that the number one reason that someone does not do estate planning is simply because of procrastination." - Anthony A. Saccaro
If you've been thinking about setting up an estate plan, now is the time. When you work with a good attorney, they will guide you through the process which is very easy. If you don't have an attorney to work with to assist you with your estate planning, or if you have questions, contact me today.
[1] Investopedia, “Complete Guide to Estate Planning”, April 30, 2021, https://www.investopedia.com/terms/e/estateplanning.asp