Estate planning is an important step to take in order to ensure that your loved ones are looked after once you are gone. However, estate planning can seem like an overwhelming prospect for many people, and it is understandable if you have a lot of questions. Complex terminology, as well as misconceptions about the estate planning process, can leave you unsure where to start, or what steps you will need to take to create an estate plan that meets your family's needs. To help you better understand the estate planning options available to you, here is a look at answers to some of the most frequently asked estate planning questions we receive.
What is Estate Planning?
Perhaps the first question that comes to many people's mind is "what is estate planning?" When someone passes away, his or her property is passed on to another person. While many people choose to have their property pass to family, an adult has the right to choose how they want their assets to be divided, and who they want these assets to go to, after their passing. In order to ensure that your assets are handled according to your wishes after you are gone, you need to create an estate plan. An estate plan provides guidelines for the distribution of the assets in your estate which includes all of the real and personal property that you own at death such as real estate, bank accounts, jewelry, and automobiles. Proper estate planning is critical in providing your family and the courts with guidelines as to how you want your estate and your affairs to be handled after you are gone.
Why is Estate Planning Important?
Unfortunately, many people do not estate plan either because they do not think it is necessary if they aren't rich, or because they don't want to think about a time when they are gone. However, no matter how many assets you have, proper estate planning is critical in order to ensure that there is a legal arrangement in place for the management of your assets and affairs after your death.
If you do not have an estate plan in place when you die, your state's intestacy laws will take into effect, and it will be left to the courts to decide how your assets will be divided and who will benefit from your estate. This can result in your estate being subjected to higher estate taxes and your assets going to the wrong people. Without any control over what happens to your assets, a relative you do not like could end up benefiting from your estate.
Estate planning ensures that there is legal documentation in place to guide the distribution of your estate according to your wishes. This is critical no matter how large your estate is, as it prevents your loved ones from fighting over family heirlooms and having to deal with the probate process after your passing.
Isn't a Will Enough?
It is common for people to use the terms "will" and "estate planning" interchangeably; however, a last will and testament should only be one small part of a well-crafted estate plan. While many people assume that a will is all that they need to ensure that their affairs are in order, this is simply not the case. While a will can help to provide guidelines for how to distribute your assets, you will also need other documents as part of your estate plan.
For instance, a durable power of attorney gives instructions on who you want to handle your affairs if you fall ill or become incapacitated, and it allows you to outline how you want your affairs to be handled in such a scenario. If you have minor children, you should also include guardianship designation in your estate plan to ensure that your children are cared for should you die prematurely. You can even use your estate plan to provide loved ones with guidance on how you want your remains to be handled when you die.
While a will can be helpful in allowing you to outline how you would like your assets to be handled upon your death, with a will your estate will still have to go through probate. This is why many people choose to have a living trust in addition to a will, as a trust can help to shield much of their estate from the probate process.
Proper estate planning can help to protect your family while shielding much of your estate from probate. Feel free to contact us to learn more about the importance of estate planning, and look out for our next post as we continue to answer our most frequently asked estate planning questions.