One of the most commonly asked questions relating to estate planning is “What is real estate planning and why should you be thinking about doing yours?” Real estate planning is the collection of preparation tasks that serve to manage an individual’s asset base in the event of their incapacitation or death. This includes the bequest of assets to heirs and the settlement of estate taxes. These should preferably be done with the help of an attorney experienced in estate law.
Going through the real estate planning process is worth it because it allows you to make the decision about what will happen to your possessions and property in the event of you passing away or losing your ability to make that decision later on in life because of health problems. If a person passes away without any type of trust or will set up, their financial assets and property are all subject to the laws of the state.
Major Estate Planning Tasks
The process of estate planning includes a number of tasks such as:
- Making a will
- Limiting estate taxes by setting up trust accounts in the name of beneficiaries
- Establishing a guardian for living dependents
- Naming an executor of the estate to oversee the terms of the will
- Creating or updating beneficiaries on plans such as life insurance, IRAs and 401(k)s
- Setting up funeral arrangements
- Establishing annual gifting to reduce the taxable estate
- Setting up durable Power Of Attorney (POA) to direct other assets and investments
The Importance of Estate Planning
Though it may seem like estate planning is something for the very rich, this isn’t the case. Anyone with any reasonable measure of financial assets and property can use estate planning to protect their loved ones interests and direct their assets towards those among their family and friends who are most in need of or most deserving of them.
The best thing about estate planning is that it prevents your assets from ending up with unintended beneficiaries. Without an estate plan in place, the courts get to decide who the heirs to your estate will be and how your assets are distributed among those heirs. This is a long process that can get ugly and very difficult for your family. Furthermore, the courts do not know which one of your children is most deserving of your inheritance or which one is most financially responsible.
This further reinforces that estate planning is not only for the ostensibly wealthy. You don’t need that kind of wealth to have made successful investments in the stock market or real estate industry, or to have collected a substantial amount of financial savings over a lifetime.
The next thing to understand about estate planning is that it protects families with young children. If you are a parent with young children, you need to be prepared for the unthinkable. Life can become very difficult for young children after the death of a parent or both parents but estate planning can help you give them the protection you can in case of your demise. Estate planning can help you dictate how your children will be looked after and by whom through your will. Without such a will, your children will be at the mercy of the courts, which neither knows your children nor understands their needs as well as you do.
Another benefit of estate planning is that it stops heirs from over paying taxes. Estate planning helps you protect your loved ones from big tax hits. The main focus of estate planning is to transfer your assets to your heirs while keeping their tax burden as small as possible. Even a small bit of estate planning by couples can significantly reduce the amount of tax their children will have to pay when collecting their inheritance after the couple’s demise.
Estate planning also minimizes the risk of family strife over the inheritance. Deaths and the subsequent legal matters can wreak havoc on families. Disagreements over the distribution of inheritance can add to the stress and emotional anguish following a loved one’s death. One sibling may feel he is most deserving of the lions share of the estate because he is the oldest, while the other may feel that the oldest sibling doesn’t deserve that share by virtue of being born first. Disagreements over inheritance can tear families apart and you can protect them from this danger by making these decisions for them, along with ensuring that your assets are handled how you want them to be.
What is the best time to begin Estate Planning?
Most people think the time to begin estate planning is when they reach retirement age. This isn’t necessarily the wisest option because life is very unpredictable and death or a medical condition which results in your incapacitation can strike at any time. You will always benefit from planning for the worst possible scenario. Furthermore, if your lifestyle or current medical condition puts you at a statistical risk for an earlier death, earlier estate planning is even more important for you.
It is wise to start your estate planning as soon as you have any measure of financial assets and property. It becomes even more important when you have someone dependent on you like a spouse, child or elderly parent. The preparation of a will and selecting someone you trust as a financial power of attorney will lay a financial safety net in the event of your demise or incapacitation.
estate-planning is also very flexible. You can easily change things down the line, so there is no need for you to wait to plan for a later time. You can always make any changes you want depending on the situation you and your family are in.
Preparing these instructions earlier on will give you and your family peace of mind when it comes to life’s most difficult situations. Having to worry about their financial security and the stress from any legal battles following the demise of someone without an estate plan are worries you can easily protect your current and future dependents from. You can do this by beginning your estate planning as soon as you can. Death is inevitable, so why not have a plan in place?