Income Artist

The Importance Of Estate Planning

Author: Jimmy Barron
Published:February 22, 2023
5 mins 14 secs

It seems like most people spend more time planning a vacation, choosing a place to eat dinner, selecting a car to purchase than on estate planning.

Remember that estate planning involves deciding the beneficiaries who can inherit your assets after you are gone.

Understandably, it may not be fun to do this, but without estate planning, it is impossible to choose a person who can get the assets that you have. 

Without an estate plan, it can be costly and can affect your loved ones in the long run when it comes to settling your affairs after you pass away.

Regardless of whether or not you have a large IRA, pricey home, or valuable art to pass on, it’s necessary to have an estate plan. This article discusses estate planning. 

An Estate Plan Explained

It’s worth mentioning that estate planning goes beyond creating a will. It can arrange your finances and affairs so that things can happen as you desire when you pass away or even, in some situations, when you are still alive.

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No doubt, estate planning is necessary for every person, regardless of their wealth or age. 

Estate planning avoids legal tie-ups and taxes, and makes sure that your assets are bequeathed as you want.

Also, an estate plan appoints the proper individuals to look after your minor children and even you when you are incapacitated. You can click here to learn more about estate planning. 

Most people think that an estate plan and a will are the same thing, but they are not.

Both estate plans and wills offer instructions on how your assets can be handled after you are gone, though estate planning includes much more.

In most cases, estate planning can involve giving powers of attorney to have someone make financial or medical decisions for you when you cannot offer instructions yourself.   

It can also include giving medical directives to indicate the types of medical treatment you desire if you are incapacitated.

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It also involves explaining the individuals who should get funds from your annuities, life insurance, retirement accounts, and many more.

There are many good reasons why you should consider having an estate plan. This can include the following:

It Saves You Money And Time

When you are gone without a will, it means that you die intestate. In such cases, the laws of your estate where you have property can determine what happens to it and who gives them away.

A probate court can name a representative responsible for sharing your assets. Sometimes, the surviving spouse can take this responsibility. 

But if you don’t have a spouse or any close family member who is ready to take this job, then the court can appoint a public trustee to share your property according to state law. 

This means that no person can touch your property or even carry out your instructions.

In other words, your assets are frozen until a court of law goes through the details of the estate.

It also makes sure that it pays off debts, applies state laws, and decides on how to allocate your assets.

You should note that the probate process can involve a lot of paperwork and court appearances by attorneys, so your estate needs to pay their fees.

Worse still, the process can take long, and sometimes it can take a couple of months of even years to complete it.

Given the legal bills your estate has to pay, it can lead to quite costly for your surviving family members. 

This is the reason why it makes sense to have an estate plan so that you can reduce the expense and time of dying intestate.

You need to create a will that has an executor of your estate. You should also make sure that all your investment accounts have living and correct beneficiaries. 

Estate Planning Avoid Big Taxes

One of the reasons estate planning is usually associated with rich people is because of estate taxes.

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In most cases, federal estate taxes often affect the super-rich individuals.

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This is because the tax exemption for each person is about $12.06 million, meaning that a person who dies with assets that are valued above this figure has to pay federal estate taxes. 

But inheritance and state estate taxes can be another issue. Estate taxes are paid by the estate of a deceased person.

On the other hand, inheritance taxes are paid by the beneficiaries of the deceased person. In some cases, the estate may pay inheritance taxes. 

There are some states that impose an estate tax while others impose an inheritance tax.

The good thing about an inheritance tax is that its threshold tends to be lower than the ones for federal taxes.

You should remember that there are some ways you can make sure that your assets pass onto your beneficiaries without the federal government or state taking a huge slice of it.

This includes setting up trusts, establishing joint accounts, and making irrevocable gifts.

All these can remove assets from your estate, but you must have an estate plan to carry out these tactics. 

Estate Planning Protects Minor Children

Without an estate plan, a probate court can appoint a conservator or legal guardian for them who is usually a family member like a grandparents to be a guardian.

The court can also appoint a third party like a family friend to be a guardian, especially if they decide to petition the court for the appointment.

If a minor kid doesn’t have a surviving family member and a third party fails to step forward, then the child can be a ward of the state, so they may enter the foster care system. 

Therefore, if you desire to have a say in choosing who can look after your minor kid when you are gone, then you must identify an individual in your will.

It also makes sense to have an alternate guardian in case something may happen to your first choice.

As you can see, it’s important to prepare for your minor children in case you pass away.

After all, you don’t want someone you don’t want to take care of your children after your demise.