The Importance of Estate Planning: Protecting Your Wealth and Your Family's Future
Have you accumulated any wealth in your life? If so, you have an estate that can be properly managed to give you control over what happens to your wealth when you die. The possessions and assets that make up your estate include your life insurance, investments, cars, and furniture. No matter the size of your estate, it's highly recommended that you create a robust estate plan to protect your wealth and your family.
What Does Your Estate Include?
Estates are comprised of your assets, money, and possessions. Along with life insurance policies and bank accounts, your retirement accounts and real estate are part of your estate as well. If you have a vacation home, your estate plan can include details on what will happen to this home once you pass away. The same is true of any vehicles you own.
Understanding Estate Plans
Estate plans are a selection of legal documents that detail how you want your assets to be managed after you die. There are many different things that need to be addressed in an estate plan, which include:
- Guardianship - If you have minor children when you're creating an estate plan, guardianship involves identifying who will take care of your children if they haven't reached 18 years old when you die.
- Power of attorney - This person will make legal and financial decisions in the event that you become incapacitated.
- Beneficiaries - Any heirs or beneficiaries in your estate plan will inherit your property and money following your death.
- Healthcare proxy - Your healthcare proxy is the person who will make all medical decisions if you're incapacitated.
When you create an estate plan, it might be best to work alongside an investment management company like ours that can provide you with full-service estate planning assistance. By obtaining professional help, you can avoid making costly mistakes with your estate.
Keep in mind that estate plans aren't written in stone. While the first estate plan you draft is important, it's an ongoing and long-term process that involves reviewing the legal documents and making updates when necessary. Updates to estate plans usually occur following major life changes or alterations to existing laws. There haven't been any big changes in estate law in the last year or two when it comes to regulation.
Documents You Should Create
Two of the most important documents for estate planning include wills & trusts. A trust is a scenario that involves one party providing another party with the rights to hold assets or a property title for a third party, which is the beneficiary. For instance, you can create a trust for your child that's designed to pay for their college expenses once they graduate high school. Until your child reaches this age, the funds for the trust will be overseen by the trustee.
A last will and testament details how you want all of your belongings to be distributed. You can also use this document to identify who you want to take care of your dependents, pets, or children. You might also want to create a living will depending on your situation. This document is meant to describe the end-of-life treatment you'd like to receive in the event that you're terminally ill. You could put it in writing that you'd want to be taken off life support if the situation arises.
One name for a healthcare proxy is a medical Power of Attorney (POA). This individual will be able to make most of the important decisions pertaining to your medical care when you're unable to. A financial POA provides the same benefits in regard to financial decisions.
If you have life insurance that you'd like to add to your estate plan, the money that comes from this insurance can be used to help your beneficiaries cover funeral expenses, medical bills, or mortgage payments. It's a great way to protect your wealth and leave a strong legacy.
How to Designate Beneficiaries
Designating one or more people as beneficiaries involves naming the individuals who are set to inherit your assets when you pass away. While this process is often considered a part of estate planning, it usually takes place outside the estate planning process. You can name beneficiaries for individual assets, which include everything from retirement accounts to life insurance policies. Once you pass away, those specific assets will be transferred to the designated beneficiary.
You could also consider naming your estate as the primary beneficiary, which means that an asset would be transferred directly to the estate instead of an individual. At this point, the asset will be distributed according to the details in your will or trust. Keep in mind that designated beneficiaries involve anyone who doesn't fall under one of the following categories:
- Chronically ill person
- Disabled individual
- Child below the age of 18
- Surviving spouse
- Individual who's within 10 years of the decedent's age
People who fall into one of these categories are viewed as eligible designated beneficiaries. The main difference between the two is that eligible beneficiaries receive more benefits, which include flexibility when it comes to making withdrawals. Because of how important it is to name the right beneficiaries, you should receive professional help when creating your estate plan.
When to Perform Estate Planning
You should look into creating an estate plan soon after you turn 18. The completed plan should then be revised every three to four years. However, it's never too late in your life to start. Make sure you update this plan after any notable life events.
By creating a detailed estate plan today, you'll know that you've done all you can to protect your wealth and your family when you're gone. If you need help creating an estate plan, call us today to schedule an appointment and discuss your estate planning goals. We're here to help in any way we can.