You are busy saving for your kids’ college tuition, investing wisely so you can retire when you are still agile enough to enjoy it, and making your way up the ladder at your job. The last thing you want to think about is your eventual demise and how to prepare.
Why is estate planning important when you are in the prime of life? The simple answer is that no one knows what the future will bring.
The more complex answer is that you and your family can reap many benefits now from planning for the future wisely. Here are five reasons why it pays to invest your energy and resources now in a comprehensive estate plan.
1. Tax Benefits
The primary reason people enter into an estate plan is to save on taxes.
In the United States, taxes are levied on the estate of a deceased person to property transferred via a will or intestacy laws. Federal and state laws apply.
The recent Tax Cuts and Jobs Act of 2017 increased the exemption for those required to pay this tax on any estate valued at under $11.18 million, so actually a very small number of people will actually pay this tax.
There are still numerous reasons to engage in estate planning, even if your estate is worth less than $11 million. If you have owned property or securities which have increased in value over time, estate planning can anticipate your expected taxes on capital gains and find ways to reduce it.
Estate planning can also help you retire the way you want, by planning out your estimated income over time and how to invest in order to maintain your lifestyle throughout your life.
2. Unexpected Costs
Robert Dickson of Dicksonlegal.com says that although no one enjoys planning for the care of their family in the event of their death, it is important to take the necessary steps in creating a will.
A will is a critical component of estate planning which will determine how you want your assets allocated. It allows you to insulate your children from the burden of many costs, from funeral arrangements to taxes.
Estate planning can also give your children access to your funds prior to your death when you all can enjoy it. A good trusts and estates attorney can help you plan your tax-exempt gifts over the years to diminish your taxable estate and provide your children with money for college or their first home before you pass.
3. Clear Declaration of Wishes
Another important reason to draft a will is to make clear your wishes for who gets what. Many families have been torn apart after the death of a parent as members argue over what they think the decedent wanted.
You can decide who in your family should inherit your assets, or you can cut family out completely and leave things to friends or charities. So long as your attorney follows the rules on will drafting and signing, courts give great deference to these documents.
You can also outline your wishes for a funeral so that your ceremony is exactly how you would like. If your children are under the age of 18, you may specify who you want their guardian to be if they do not have a living parent. Without a will, if you and your spouse die when your children are young, the court will decide who will raise them.
Your estate planning lawyer can also help you with documents that will dictate how you want the spend your final days. You can create a Living Will and a Healthcare Advance Directive which will delegate responsibility for healthcare decisions to someone you trust if you are incapable of making them. You can make clear that you do not want doctors to use extraordinary means to prolong your life.
4. Leveraging Your Home’s Equity
Usually, a house is an individual’s largest asset. It may be worth a great deal more than what they paid for it.
This lack of liquidity can create issues upon someone’s death. Perhaps there are debts to pay, requiring the house to be sold. Perhaps one sibling wants to sell, but another does not.
An estate planning attorney can help you leverage your home equity in ways that benefit your family during and after your life. Some families benefit from a reverse mortgage, where the house can be used as collateral for funding which lets a person stay at home for the rest of their life.
Some families explore different kinds of trusts, which can bequeath the family home to children before their parent dies in ways that can alleviate tax burdens and allow for more smooth transitions.
5. Protecting Your Children
Estate planning is critical for protecting your children after you are gone. This protection can be provided in many ways, from naming a guardian to young children to creating trusts for the children’s benefit.
Trusts are vehicles that can shield assets from high tax rates and allow them to be invested. A well-structured trust may generate income which can allow your descendants to earn money for many years after you are gone.
Trusts can also protect your children from profligate and unwise spending. Some trusts disperse the assets over time, at the ages of 21, 30 and 35 for example. This ensures – as well as one can- that a young person does not blow his entire inheritance on a youthful whim.
If you have a disabled relative who must be taken care of, estate planning will make sure the money is there to provide for them over the course of their lifetime. Special needs trusts allow a disabled person to inherit money but still be eligible for government benefits, which otherwise are only available to people without any significant assets.
Why is Estate Planning Important? Because Some Decisions are Not Best Left to the Last Minute
If you are wondering “Why is estate planning important?”, you should ask yourself if you want to have some control over your end of life decisions, both financial and otherwise. If you want to maximize your hard-earned money to live and die the way you want, with enough to leave behind to your loved ones, you should talk to an attorney about estate planning.
Keep checking back for more information on living your best life.