If you are anxious about your assets and the future of your loved ones should an unfortunate event happen, you can start estate planning now.
Death is absolute. The exact time, location, and reason will never be known to you until the very moment of death. No one knows when it will be their turn, so some people are not prepared for what will happen to their family and possessions.
When that time comes, you are basically relinquishing control of everything that you have managed to own during the time that you are alive. Estate planning will help you organize all the assets you will leave behind to ensure that it goes to who or where you want it to be.
Having an estate plan will not only be beneficial for you but to your loved ones as well. Your estate plan will help them decide on what to do with the properties you will leave behind and assist them in the inheritance. Moreover, estate plans can help smooth over the complicated process of taxes involved with the heritage and assets.
To know more about estates and estate planning, keep on reading.
What is Estate and Estate Planning?
Everything you own and possess while you are alive is included in your estate. Land, real estate, cars, jewelry, investments, insurance policies, and more are all part of your estate—it is the worth of your belongings, excluding the liabilities. Regardless if it is big or small, your estate is better off with a plan in case of any unfortunate incidents.
As valuable as it is to plan for your retirement, preparing things for when you pass away will also benefit those who will be left behind. Estate planning, true to its name, is how an individual can plan or choose what happens to their assets after they pass away.
Estate planning is, by far, the most practical and guaranteed way to ensure that your possessions will be delivered to where you want them to go. Seems familiar? It is often connected to wills, but that is only a part of estate planning.
Aside from that, planning your estate also allows you to make decisions about your health, medical care, and funeral arrangements in the future. At the same time, you are still alive and healthy.
A common misconception about estate planning is that it is only for elders. While it is almost imperative for senior citizens, estate planning can and should be done at any age. Death is uncertain, so you must always be prepared for anything.
What are the Components of Estate Planning?
There are four ways you can establish a plan for your assets depending on their size and complexity.
Will
You might already know what this is because it is the most common form of estate planning in movies and TV shows. A will is a legally binding document that contains everything that the testator wants to happen after their death.
The executor or a trusted person of the testator will be the one to carry out the wishes according to it. A will can only include assets that are not owned jointly. You will have to pay the inheritance taxes and settle any debts before the executor accomplishes the other provisions.
Living Will
A mental or physical disability can render a person unable to decide for their health and medical care. If you want to take control of what will be done to you if an unfortunate event happens, you can write a living will.
A living will is a legal way to state what you want to happen to you while you are incapacitated. Your family and doctors will be obliged to follow whatever conditions are outlined in your living will. Individuals can put in their living will whether they want to be kept alive or not via ventilators, antibiotic treatment, organ donation, and such.
It is advised to consult a doctor or physician while putting together a living will because of the variety of medical factors involved. Still, you can also opt to do it with your lawyer like most seniors do.
[Editor’s note: Some US states do not recognize living wills. In these states, you must get a Durable Power of Attorney for Medical Issues instead. It does the same thing as a living will.]
Trust
Trust is pretty similar to a will: the assets and where they ought to be will be specified in the document. However, the stark difference between a will and a trust is that a trust does not need to go through the rigorous process of going through probate court. Therefore, trusts can save time and even money because it sometimes does not have tax as that of a will.
There are two types of trust that you can choose from.
The first is called Living Trust, which will allow you to name yourself as the trustee, maintaining control over the assets listed. It is a flexible form between the two and can let you change the beneficiaries and inheritance terms whenever you want.
The second one is called Irrevocable Trust, which will name someone else as the trustee, and they will then hold all the control over the assets. Unlike living trusts, an irrevocable trust cannot be altered after being put into place.
A trust myth is that it is only for wealthy people, but anyone can get it should they choose it as the best way to plan for their possessions.
Power of Attorney
This is different from the first three strategies because instead of outlining the assets and their designated places, a power of attorney allows an individual to appoint someone to act on their behalf for legal and medical matters.
The appointee may not be a lawyer but someone capable of making significant and valuable decisions for the sake of the one who appointed them. Whoever the appointee is can have the power to handle the person’s finances, medical care, and real estate management, depending on the specifications in the POA document.
A power of attorney can be temporary or permanent depending on what the person wants and can be written for immediate effectiveness. The duration and scope of the POA all depend on the circumstances and wishes of the individual.
Does Estate Planning Come with Taxes?
There are two kinds of taxes to consider when planning about what will happen to your estate.
Estate Tax
This must be paid before any of the assets included in your estate plan are released to the receivers. There is no fixed value because every state has different tax values: some might require additional taxes to be paid to the state government while others might not.
The estate tax is paid by the deceased or the estate itself. Consider the tax specifications of the location where the will will be executed so that the values will not be a surprise.
Inheritance Tax
Unlike estate tax, this is paid by the receiver of the assets according to the will or trust. Like the estate tax, though, its value depends on the state because some exempt some inheritors from paying it while others increase it.
How to Craft an Estate Plan
If it is not apparent yet, you should be with your lawyer when making your estate plan. Anything legally binding is compelling, so you need someone who is an expert in legal matters to assist you. It will be a big hassle if you commit a mistake in the process of putting in a will, trust, or power of attorney.
You need to make sure that the paperwork is completely and properly filled out and correctly filed. Lawyers can also advise you if a power of attorney contains too much or too little power if your beneficiaries are getting more or less than what you intend them to receive, or how you can solve problems regarding the taxes.
Lawyers will be extremely helpful in making your estate plan as they have experience in doing so and know how to navigate through the processes of every strategy. They are experts and professionals that can help guarantee you do not forget or overlook anything in the specifics needed to be followed.
Do You Need an Estate Plan?
Death is scary because we do not know what happens to everything and everyone we leave behind after it. If you are anxious about your assets and the future of your loved ones should an unfortunate event happen, you can start estate planning now to settle down your worries.
Estate planning allows you to decide how your assets will be inherited or handled. The different estate planning strategies will give you the upper hand in everything you want to happen to you and your possessions. Moreover, it can assist your family members or people you trust to have the easy way in making decisions regarding entitlements.
Final Thoughts
Estate planning will carry off the burden that an individual might have when they are no longer as capable as they once were or have already crossed to the other side. This is beneficial to anyone and is guaranteed to help them rest in total peace, knowing that the people they love receive what they deserve to have.
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