As the whole world navigates the pandemic brought by the coronavirus, many are now considering how they could care for their family should the worst come to the worst. While it isn’t always nice to really think about, protecting your properties in case of untimely death is essential, especially if you want to secure your financial legacy and maintain peace of mind. The best way for you to do this is through estate planning.
Contrary to what most people believe about estate planning, it’s actually for everyone. Regardless of your income, estate planning has become even more important in these trying times.
Estate planning is something that nobody really likes to think about – except maybe for estate lawyers. Admit it, estate planning isn’t only morbid but also boring. Also, chances are, you already have one long enough list of things to do in the face of this pandemic. Your family needs supplies for the coming months, and you’re still trying to figure out the best thing to do for your business (if you have one) as the community quarantine efforts continue. So, why worry about last will?
Well, you can look at estate planning this way: When the worst happens, and your financial affairs are still not in order, the next thing you know is that you’re leaving your family not only a big headache but also a possible financial burden. Home maintenance is something they won’t have to worry about, yes. However, they’ll be forced to actually make some crucial decisions regarding your estate, even at an emotionally-charged time. They’ll have to carry it out despite not having any idea of whether or not what they’re doing is what you personally had in mind.
What is Estate Planning?
Essentially, estate planning is all about preparing your assets or estate for transfer upon your death. Not only does this protect you and your family, but it also preserves your properties for them to be completely transferred to your chosen heirs when you die. Estate planning also helps minimize tax obligations during the transfer of your assets.
Why Is Estate Planning Important?
Estate planning is important because of three main reasons.
- The first reason why it’s ideal to do estate planning is that it helps avoid family relationship strains. Of course, you don’t want your beloved children (both illegitimate and legitimate), spouse, and other relatives to fight over who actually gets what upon your death.
Without proper estate planning, a probate litigation attorney from a litigation law firm will really have to get in the scene, especially when your heirs start to challenge each other over your assets.
- Second, estate planning helps in lessening, if not eliminating, any financial implications because of your death. As you probably already know, all of your assets can actually become frozen upon your death, and your loved ones must pay the corresponding estate tax for them to access your assets and transfer your properties’ ownership.
These assets include important investments, like mutual funds and stocks, properties that are under your name, and all cash in banks.
- And third, if you want to leave a good legacy to your family, this requires you to have an estate plan. If you prepare for your death, you’re helping your loved ones comfortably move on with the exact life you’ve dreamed and designed for all of them.
Here’s a more detailed look at the things you can do to protect your properties and leave a good legacy to your family members when you die:
- Draft A Will
Many American adults actually don’t have a will or don’t bother making one as a way of preparing for the future. That, of course, is a big mistake.
The truth is, even if your estate is not the same size as that of Bill Gates, someone will still need to handle all of your financial affairs right after your death. Things will become easier and more accurate if a document that spells things out exists.
If you have children, then this becomes especially important. Part of drafting a will is naming a guardian for children under 18. You’ll also have to name one trusted individual to act as your estate executor. Ask a lawyer about coming up with a minor’s trust if your children are still young. A minor’s trust will hold the assets you’re leaving to them until your children reach the age of majority in your state (mostly 18).
Drafting a simple will may only cost you $300 to $500. However, it’s essential to note that some assets you have will require you to pay an estate attorney and hiring one will cost you around $1,000 to $3,000.
You can check with the bar association of your state to find a lawyer that specializes in drafting a will. You can also look for an estate planning council in your area.
Please keep in mind that reviewing your will is essential, and you have to do it every 2-3 years. You can also consider revising your will after significant life events, such as marriage, divorce, birth, or death.
- Consider A Trust
A trust describes when and how your assets will actually be distributed after you die. Other purposes of a trust are to avoid probate, minimize taxes, and name a person to care for your young children when you die.
A trust is often utilized in combination with your will. Is there any difference between the two? A trust primarily avoids probate when transferring your estate to your beneficiaries. The two most common trust types are the following:
- Special Needs Trusts: If one of your dependents has a disability, you need a special needs trust to provide for them and avoid compromising Social Security, Medicaid, or other assistance from the government.
- Caring For Children Under 18: If your children are still below the age of 18, you need a trust that aims to care for them. The trustee will often use this type of trust to pay for all expenses of your children until age 18.
- Assign A POA (Power Of Attorney)
What this document does is to authorize someone to handle important matters, in case you can’t act or perform it on your behalf. A power of attorney has two types:
First is the financial POA, which allows a person to take care of financial processes, such as the writing of checks. Second is the medical POA, which lets someone make decisions regarding your health care. If you were incapacitated, your family might have to visit the court for handling simple estate matters without this form. This is an extremely important yet very inexpensive document, so there’s no reason why you shouldn’t produce one.
Decide whether its the standard durable POA that you want or a “springing” one that requires a physician to declare you incapable or incompetent before it becomes active. Every five years, make sure to update this document even if it’s already correct since authorities can sometimes become hesitant about accepting older forms of power of attorney.
- Assign A Digital Power Of Attorney
Having a digital POA has become increasingly important as the lives of people also become virtual. That’s primarily because you actually don’t own whatever digital assets you have in the same exact way you own physical property. Photos you post on social media and other things you think you own in the digital world may not actually be yours once they’re already online.
If you want to have a better shot at claiming all your social media accounts, digital assets, and digital money and leave them to your beneficiaries, you have to assign a digital POA within a legally binding document. This is especially important for families who run an online business or make money online.
- Ensure The Safe Storage Of Your Estate Planning Documents
Once you already have created your will, trust, power of attorney, and other documents making up your entire estate plan, you have to do the following:
- Organize and keep them together.
- Keep or store all original documents inside a protected place that’s easily accessible to the executor of your estate. You can use a safety-deposit box for this.
- Inform your executor and your attorney about the location of the original documents. Also, make sure your lawyer has copies of all these documents just in case they’re lost or damaged.
- Create electronic companies of all important documents so you can store them digitally.
These are all important factors to consider.
- Don’t Forget To Update Your Beneficiaries
Did you know that beneficiaries on your investments, retirement accounts, insurance policies, and even your 401(k) actually trump your will? What that means is that even if you’ve already left all your assets to your children and your will reflects it, the stash still goes to your wife if she’s still the one listed as your beneficiary in your Individual Retirement Account. People commit a lot of mistakes in this part. They have additional children or get divorced but still don’t update their beneficiaries, which can run into serious problems later on.
As already mentioned, it’s best to review your designations every two to three years or during important life events, such as marriage or birth of a child. Also, make sure that you’re choosing a contingent beneficiary instead of a primary beneficiary. If the latter and your recipient, unfortunately, passes away before you do, funds will go straight to your estate, creating tax and involving legal issues.
Leaving seriously outdated beneficiaries isn’t unheard of for many people. You definitely want to change yours.
Final Thoughts
Talk to your family or loved ones regarding your estate plan. This is essential to avoid surprises and unnecessary negative reactions later. You should also continuously communicate with anyone whom you assigned to be involved in the carrying out of your intentions, such as your lawyer.
Taking care of these things will help you ensure that all your assets stay in the family. The last thing you’d want is for the properties you’ve acquired from years of hard work to go into the hands of individuals who aren’t even part of your life (or not anymore).
For more great Thousandaire articles, read these: