Four Reasons You Need an Estate Plan
Sometimes when people think about an estate plan, they think of a last will and testament, but an estate plan is much more than a will. It is sometimes preferably to create an estate without a last will and testament: yes, without a will. All of an individual’s assets can sometimes be distributed without a will.
1. Manage Consistent Distribution of All Assets
Many assets are distributed through beneficiary designations. Assets such as life insurance proceeds, retirement accounts, and mutual funds or money market funds are typically distributed via beneficiary designations rather than through a last will and testament. Sometimes people include these assets in a last will and testament though. This is more likely to happen if an individual prepares a last will and testament on their own or with an online template.
If there is an inconsistency in designations where a different beneficiary is named in the will than on the forms on file with the financial institution, only the beneficiary designations on file with the financial or insurance company will be considered. A last will and testament cannot overrule a beneficiary designation. It is important for individuals to occasionally update the beneficiary designations and assure they are correct.
2. Provide for the Physical Care and Custody of Dependents
It is ironic that most young parents don’t think they need an estate plan because they are young and are not likely to die any time soon. The irony is that young parents need a plan to provide for the physical and emotional care of their children and everyone would agree their children are more important than their possessions. Young people typically don’t give much thought to who would care for their children if something happened to them but when asked, they would say it is the most important decision they would want to make and not leave in the hands of the court.
An estate plan should include a plan for the physical care of minor children or vulnerable adults for whom an individual is responsible. A parent can provide as much as detail as s/he wishes. A parent can
3. Provide for the Financial Future of Dependents
Generally speaking, minors cannot directly accept assets from an estate. Property or assets left to minors are held in trust, or in a custodial account, until such time as they legally old enough to receive it. In most states, the age is 21 but it does vary from state to state. Most parents would prefer to choose their own trustee to manage the assets left for their children. If parents do not designate a trustee, the court will designate a trustee on their behalf. A trustee can be authorized to provide for the specific needs which are important to the parent.
4. Tax Planning
No one wants to think of half of their assets going to the government in the form of taxes. There are federal estate taxes and some state estate taxes as well. An experienced estate planning attorney can help you create a comprehensive plan which minimizes tax consequences. Through a mixture of estate planning strategies and tools, an estate plan can be created to lower the tax impact on beneficiaries of the estate. Trusts can be a good way to preserve assets for beneficiaries and to provide income for a spouse or other dependents. Charitable gifts might also be used to maximize the good assets can provide while minimizing the amount of taxes owed. An estate plan is not only a plan for the future but can also be a plan for investing and managing assets now.
Estate Planning is not only for people with lots of property and assets. People with debt also need an estate plan to make sure their beneficiaries and dependents are not left with your debt after you are gone. For example, if a testator leaves a home, the individual receiving the home may not be able to afford the mortgage, the property taxes, or the maintenance of the home. With careful estate planning though, the mortgage might be paid off from other estate assets or the property might be held in a trust which can provide income to cover property expenses. A creative estate plan is as useful in estates with little property as in estates with lots of property.