Many people are under the misconception that estate plans are only necessary for those with substantial wealth. In fact, estate plans are important for everyone who wants to plan for the future. For those unfamiliar with the concept, an estate plan coordinates the distribution of your assets upon your death. Without an estate plan, your estate (assets) will go through the probate system, regardless of how much or how little you have. There are many reasons that everyone needs an estate plan, but the top reasons are:
1. Protecting You and Your Family
Most people associate an estate plan with death, but an estate plan also comes into play if you become incapacitated. Through a proper estate plan, you can designate who will be responsible for making your financial and medical decisions, the authority they will have, and restrictions you would like placed on their power.
2. Distributing Your Assets as You See Fit
Without an estate plan, your estate will go to the probate courts, and your assets will be distributed according to the state’s intestacy laws, which generally prioritize spouses, children and parents. In addition, not having a will or trust in place lends itself to the potential of disputes between surviving family members. The best way to ensure that your beneficiaries receive the inheritance you intend for them is by having a well-conceived estate plan.
3. Reducing Taxes
Whether married or single, having an estate plan can significantly reduce taxes owed upon the transfer of your assets to your heirs.. Without proper planning, any transfers from you to a beneficiary may be subjected to federal and state taxation. Trusts, one of the most well-known, but least understood, estate planning tools, present excellent opportunities for reducing taxes associated with inheritance.
Through a system of trusts and transfers, you can reduce the overall tax burden associated with the inheritance. For those with substantial assets, more advanced tax planning strategies will be necessary. Regardless of your current wealth, you will likely be able to reduce the taxation of your estate’s assets with the help of an experienced estate planning attorney.
4. Providing for Your Family as You Believe Best
By combining the ability to distribute assets with other estate planning tools such as trusts, you can include conditions for each recipient. This ensures that the money you want to give your nephew for college will actually be used for college, even if that is still 10 or 15 years away.
As noted, estate planning is for everyone – not just the super-wealthy. Whether it’s avoiding a future family dispute, helping a loved one later in life, or reaching any other goals or objectives, having an estate plan is the best way to protect your interests.