Despite the hard lessons learned during the COVID pandemic, surveys repeatedly show that most Americans still don’t have an estate plan. According to the article “Five benefits of estate planning” from The Aspen Times, a comprehensive estate plan ensures your assets are distributed according to your wishes when you die, minimizes taxes on your estate, and protects your loved ones, especially those who depend on you financially. In addition, estate planning protects you while you are living and ensures that your wishes are followed if you become incapacitated.
Protect Yourself and Your Assets During Your Lifetime. No one likes to consider themselves at risk of incapacity. However, this happens. If you become mentally or physically incapacitated during your lifetime, you might not be able to earn income or make decisions for yourself. Part of an estate plan includes documents to address these risks to protect yourself, your family, and your assets.
Designating a health care proxy and a power of attorney gives people you choose the ability to make decisions on your behalf. Otherwise, the responsibility for your medical, legal and financial decisions may go to someone you don’t know.
Asset Distribution. Without a last will, your home state’s laws govern the distribution of your assets. Your intentions to care for specific individuals are irrelevant, as the law decides who gets what. A last will states exactly how you want assets to be distributed. Your last will should be updated as your financial situation and/or family dynamics change. You should also regularly review designated beneficiaries on investment accounts and insurance policies, especially after significant life changes.
Minimize Transfer Taxes. While there’s no way to predict what taxes will take effect, it’s safe to assume there will be taxes on your estate. If you hope to leave a legacy of any size to your family, proper estate planning is crucial. There are many strategies to minimize taxes on inherited wealth, including life insurance, Roth IRA conversions, lifetime giving, and trusts. Your estate planning attorney will be able to create a plan suited to your unique situation.
Protect Family Wealth. As people accumulate wealth, they often become the targets of frivolous lawsuits. For this reason, placing assets in certain types of trusts can ensure efficient wealth transfer, as well as protect assets from predators and creditors.
Create and Continue a Legacy. Legacy planning is part of the estate planning process. Many people donate money or assets on their death to causes they supported during their lifetime. These goals can be achieved by contributing to a donor-advised fund, creating a family foundation, or setting up a philanthropic trust.
Creating an estate plan is also a valuable tool for having candid discussions with the family about the future, avoiding future conflicts, and making your estate administration easier for loved ones.
Reference: The Aspen Times (Jan. 24, 2023) “Five benefits of estate planning.”
Suggested Key Terms: Legacy, Estate Planning Attorney, Transfer Taxes, Life Insurance, Last Will and Testament, Assets, Designated Beneficiaries, Health Care Proxy, Power of Attorney, Incapacitated
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