Contrary to common understanding, an estate plan is a need for everyone. Regardless of your social status, everyone owns some valuables. You don’t need to own mansions and lands or have large bank accounts to qualify for an estate plan. In fact, whatever you have, including your current house, a car, a checking or saving account, or personal possessions, you must establish who takes these belongings upon your demise.
The purpose of an estate plan is to control and ensure the proper distribution of your wealth. You need to provide instructions stating what each person should receive, what they should receive, and when they should receive it so that your wishes can be carried out.
Naming people or organizations is one step of the process. The more detailed your estate plan is, the better. Also, creating a plan when you are mentally and physically sound is highly advisable because you can easily carry out any changes or make updates according to the developing laws of your state.
A well-detailed estate plan has more than just names of heirs. It may include:
- Instructions for your care and financials if you are disabled before your death.
- Information about disability income insurance and health insurance in case of a long-term illness or injury.
- The name of the guardian for your minor children.
- Benefits for family members with special needs.
It is an ongoing process, so while making a plan, you would like to avoid legal costs as much as possible and keep them minimal. Therefore, the best method of creating an estate plan is through a DIY probate process. It is economical, efficient, and allows you to prepare terms. You are in control of the estate plan throughout and can use specific templates for easier submission of necessary documents. With this process, you can execute the estate plan promptly and appropriately present your case to the court.
The basics of an estate plan
In simpler words, estate planning is identifying who gets what after your death. It is also crucial to clearly understand what falls in the category of an estate so you can make an appropriate plan.
The major benefit of estate planning beforehand is distributing while you are in your senses. Otherwise, you will have no say in how the matters are handled when your time comes, and it can cause family feuds and legal fights.
For better preparation, you must gather the following documents.
Will: it is a legal document that states your last wishes. A will may also have a section for guardianship, which states who will be responsible for taking care of your children.
Trust: a trust deed is a legal three-party agreement in which the trustor allows the trustee rights to hold assets on behalf of the beneficiary.
POA: the financial power of attorney gives your nominated party the power to handle your financial matters. The durable power of attorney allows a party to handle your non-medical affairs even in case of incapacitation.
AHCD is a medical power of attorney that directs what medical actions to take if you cannot make decisions or have any disability.
Why do you need an estate plan?
Creating an estate plan can have a long-lasting impact on the lives of your loved ones, as it determines many things that can benefit them. Below are some reasons for an estate plan.
It protects beneficiaries
In case of no estate plan, the court can intervene and decide your financial matters. It is a lengthy and costly process that deprives your family members of receiving the assets.
Also, the court does not know your family history and how close you were to whom or who is more responsible among them. The absence of an estate plan can create a vacuum and inappropriately transfer inheritance.
It protects the vulnerable
As mentioned, there is a section for guardianship stating who will be responsible for young children. It gives you the liberty to pick the best option for raising your children.
It saves tax money
Another goal of estate planning is safeguarding your loved ones from the tax burden. Without a plan, you cannot control the transfer of assets. Thus, it is essential to create a plan with a vision toward keeping the tax burden as minimum as possible that protects from the IRS.
An adequate plan can reduce federal and state taxes and decrease the income tax for the beneficiaries. You must utilize estate planning as much as you can to provide relief to your heirs.
When do you need an estate plan?
Now that you are familiar with the importance and advantages of having an estate plan, this is the best time to create one. It is common for people to think that estate plans are for older people or when you retire.
However, this approach is wrong, and you must consider estate planning as soon as you turn 18. At this age, you become an adult and are responsible for your financials and medical. The sooner you create one, the better you can manage.
Besides, some life events keep reminding you about having an estate plan. The moment you open a savings account, purchase your first property, marry, or when you inherit, etc. All these life events indicate it is time for an estate plan.
How to create an estate plan?
We do not like to think about our mortality or being unable to make our own decisions. It is precisely for this reason that so many families are unprepared.
Creating an estate plan is not as difficult as you think. By following the common steps, you can easily create a plan.
- Record all your assets and everything you own.
- Sign up for life insurance to protect your family from harsh circumstances.
- Determine the conditions of your plan.
- Choose a guardian who will care for your children, pets, or yourself.
- Establish the directives.
- Determine the names of beneficiaries.
- Appoint a trusted partner. It could be an attorney.
- Finalize and notarize your plan.
- Notify the executor about the plan.
- Keep the estate plan in a safe where your family can easily find it.
- If required, update regularly.
An estate plan gives you peace of mind because it is one of the most thoughtful processes, and you know who will get what. It can avoid quarrels between family members and accurately divide your assets. Without a plan, you give powers to the court to decide on your behalf, which may not always end in the desired way. In addition, a well-thought estate plan can safeguard your heirs from taxes and fees.