An estate plan encapsulates all elements utilized to preserve a person’s legacy after death. This includes managing and bequeathing their belongings, anticipating and sidestepping unwanted complications, and developing strategies for unforeseen incapacity or permanent disability. Simply put, an estate plan is composed of several different contingencies and plans of action in the event of certain death.
If you or a loved one have wondered, “Why is estate planning important?” then continue reading. What an estate plan isn’t is also important. An estate plan is not a tool solely used for wealth preservation. An estate plan is not exclusive to those looking to build a generational fortune; they aren’t only for the rich and famous. Blended families, foreign assets, assets kept across state lines, complex ownership clauses, ongoing divorce proceedings, and even financial difficulty all call for an estate plan.
Each estate plan is unique in structure – it’s often not enough to slap a will online, print it out, and call it a day. There are pros and cons to each element of an estate plan for any given case, and you will want to go over the different aspects of an estate plan to deliberate which may or may not be relevant to your needs and circumstances.
Not Exclusive to the Rich and Famous
Consider the usefulness of a life insurance policy for families that might not be able to bear the financial burden of a breadwinner’s death. A life insurance policy could help your loved ones pay for funerary expenses and medical bills and provide a temporary windfall to secure themselves in the coming months. Keep a few tabs paid while your family readjusts and recovers.
As we live in a digital age, we dedicate much of our daily lives to the internet. Whether through online banking, work-related web portals, employee information, data kept in cloud storage, or to close a loved one’s social media account and keep it from being hijacked in the future. Even simple estate planning measures can simplify managing digital affairs after death.
Certain estate planning services, software solutions, and law firms specialize in helping clients put together contingencies. These prepare their family members for this sort of dilemma through password and security management. The versatility of an estate plan is limited only by your knowledge and understanding of what constitutes a modern-day estate plan. Let’s go over some of the most common elements and why they might be helpful to you.
The Power of a Will
The last will is perhaps the most well-known element of any given estate plan. Wills can be used to create posthumous instructions for the distribution and bequeathment of your assets and belongings. A will in itself does not do anything. Without a will or any other form of estate planning, the state determines how to distribute your assets and belongings upon death.
More specifically, your state’s intestacy laws decide it. The word intestacy comes from intestate or without testament. It refers to people who died without leaving instructions for how they wanted the state to distribute their belongings. As a result, the state distributes belongings during the probate process per each state’s intestacy succession rules.
These usually dictate that half of everything goes to a surviving spouse, and the state distributes the remainder among the next of kin. The order for next of kin goes from children to parents, siblings, nephews and nieces, uncles and aunts, etc. A probate court must recognize a will for the will to be legitimized and given power. There can only ever be one valid will – in general; the last will is the only valid one.
You can amend your will through special codicils – instructions that can be attached to a will after-the-fact. However, these must be witnessed, signed, and notarized, much like the original document. Once a probate court officially legitimizes a will, the court will choose someone to carry out the decedent’s wishes as per the will. However, there are limits to these wishes.
A will can, for example, include funerary requests. But these are not binding. Furthermore, a will can bequeath pets as property, but it cannot force the recipient to accept care of the animal being transferred into their ownership. Wills are uniquely equipped with the right to name guardians for any minor children a person leaves behind. This is provided that the courts find the chosen guardian fit for the role.
The Limits of a Will
There are things a will cannot do. A will cannot transfer property that otherwise belongs to someone else. For example, anything owned in co-ownership with the right of survivorship automatically passes to the surviving owner(s) after death.
A beneficiary bequeathment is transferred automatically into the ownership of someone else after death by a transferable-upon-death or payable-upon-death clause. For example, you can attach a beneficiary to your car and have them inherit it the moment you die. Similarly, beneficiary bequeathments skip probate – and thus ignore the will.
The same goes for other assets and accounts that traditionally transfer their remainder, or remaining value, into someone else’s hands. This includes retirement accounts, pensions, or life insurance payouts. While they can be a straightforward way to determine who gets what, wills aren’t the end-all-be-all of bequeathing assets.
Preparing for the Inevitable
Wills help gives some direction as to who gets what. They are limited in their control and your ability to protect your assets from creditors and the probate process. Probate can be invasive, as all probate proceedings become a matter of public record. Probate can also be lengthy – it can take well over a year for a probate process to conclude, which you may not want if you are interested in having your children and loved ones move on from your death.
Trusts can be another powerful estate planning tool. Unlike a will, a trust is an entity. They’re created and defined by a trust document, meaning trusts can be designed to do more than a will could. This includes controlling and investing assets in your stead while you live. Moving certain assets into trusts can help you minimize the probate process. This eliminates delays in the bequeathment of select parts of your estate.
Trusts are not alone in their usefulness. Powers of attorney and advance directives help you plan for injury and disability, allowing trusted people or loved ones to make healthcare or financial decisions in your stead and minimize the confusion around critical medical decisions. An estate plan can help you prepare your loved ones for your passing in all the right ways.