Do you think that estate planning is only for the very wealthy? Think again. Estate planning is for everyone. What is estate planning? Savvy thinkers recognize it as a useful tool. After all, it’s a way that you can make your wishes known and protect both the financial interests and feelings of your loved ones.
What Is Estate Planning?
Talk of estates often brings to mind glamourous mansions surrounded by acres of gorgeous gardens, but that’s just one potential meaning of the word. When you’re talking about estate planning, the word has a far simpler meaning. Your estate is comprised of the things, both tangible and intangible, that you own. What is estate planning? It is the process of expressing your wishes for what happens to your things if you’re incapacitated or pass away.
Reasons to Have an Estate Plan
If you’re struggling to find the motivation to put together an estate plan, spend some time learning about the importance of creating and maintaining an estate plan. This can be the driving force that helps you go from just thinking about it to actually doing it. As Investopedia explains, estate planning can help you accomplish the following:
- Protect your friends and family. Estate planning allows you to clearly designate who gets what. If you don’t take this step, a court will take on that task.
- Prevent family squabbles. Since you’ve already outlined who gets what, your heirs can’t fight over your estate.
- Protect children and other dependents. It’s your chance to name a guardian for them. If you don’t, a court will.
- Reduce the tax burden on your heirs. Shielding your estate from unnecessary taxation allows you to leave more to your loved ones.
Tools for Estate Planning
There are certain legal documents that should be included in almost any estate plan:
- Last Will and Testament: Creating a will allows you to dictate how you wish for your estate to be distributed after your passing. Without a will, your estate would have to pass through a process called probate, where state law would determine what happened to your assets. Ideally, a will should be created and updated periodically, especially after any major life event.
- Health Care Power of Attorney: Sometimes called a living will or an advanced medical directive, this document allows you to name someone to make medical decisions for you if you are unable to do so. It also provides you with an opportunity to state your preferences regarding various health care situations.
- Financial Power of Attorney: This document lets you name a specific individual to step in and handle your finances if you become incapacitated. It allows someone you trust to handle bill paying and other financial matters while you cannot.
Who Can Help?
Some people handle their own estate planning. Other people hire estate planners, estate tax professionals, or attorneys. Generally speaking, if you have a large or complicated estate, speaking to a professional will likely be to your advantage. If you have a simple, small estate, you may be able to use online resources to create your own last will and testament, living will, and financial power of attorney. Whatever approach you choose, be sure to have the documents properly notarized and filed.
Revisiting Your Estate Plan
Some plans can be created in an afternoon, shoved in a locked box, and never discussed again. An estate plan isn’t that kind of plan. It needs to be pulled out and evaluated periodically to ensure that it remains relevant. If any part of it no longer meets your needs comfortably, it’s best to update it before it’s pressed into action. Perhaps the daughter you named as your financial power of attorney five years ago has since moved across the country for work. Meanwhile, your son has returned from a posting overseas and settled into a house just 30 minutes away. After considering the logistics and personalities involved, you may decide it’s time to update the financial power of attorney. Or, you may choose to let it stand. The important thing is to review your plan regularly to be sure that it’s still a good fit for your needs.
Estate planning may seem intimidating or morbid. Ultimately, it’s a chance to protect and care for your loved ones by letting them know how you want important health and financial matters handled.
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