What Is Estate Planning and Why Is It Important?
At any given point in your life, you are bound to think or come across estate planning. Estate planning, in a nutshell, is managing and distributing your assets in case of injury or incapacitation events or death. Your assets can manifest in stocks, cars, houses, life insurance, pensions, and more. Estate planning is essential for a variety of reasons; some of which are managing your wealth for your children and spouse, allocating your legacy to a charity, or any other thing you decide to do with your wealth. The idea of estate planning can be overwhelming, as the process includes settling your estate taxes and allocating your assets to your heirs, etc. However, with the right attorney and these tips, you can go through the process smoothly.
What to consider in Estate Planning?
There are certain documents that you must obtain to start your estate plan, and therefore, the following checklist is highly important. Nevertheless, having said documents goes hand in hand with certain practices for a better estate plan. So, without further ado, let’s delve into things you should take into account when carrying out your estate plan.
1.Keep Your Will Up-to-date
Writing a will should be your first step towards estate planning; make sure that your will is up-todate and that its wording is accurate and consistent with how you’re bequeathing your assets. This step is crucial because poor wording of a will or the lack of it can result in legal problems if the parties of the will have disagreements. Therefore, it is preferable to write the will carefully and clearly so that it is clear who will inherit your assets
2.Durable Power of Attorney
Drafting a durable POA or Power of Attorney is a fundamental step, as a POA agent will act on your behalf if required in certain situations, such as if you are deemed mentally incompetent to represent yourself. If you don’t have POA, the court can distribute your assets in a way you may not have desired. Hence, the POA agent or person will then have the power to make legal decisions as if they were you.
3.Limited Power of Attorney
In case you don’t like the idea of durable power of attorney (i.e. giving all of your possessions to someone else so they could do anything they please with it), a limited power of attorney will give you what you need. A limited power of attorney is a document that adds limits to the authority or power of the person you name as a representative. So, for instance, that person will only have the liberty to sign documents on your behalf only when selling a particular asset, and so on.
The person you nominate to manage your finances after you will have much power; they will quite literally have your life and financial well-being in their hands. So, make sure that you choose them wisely. It’s better that you compartmentalize representations, meaning that you should assign different people for financial and medical representation so that not only one person will have much power. It’s also advised that you have a backup in case the person(s) you’ve picked are unavailable.
There’s a large number of wills that have this clause readily incorporated into their wills; however, not all of them do, so it’s highly advised that you include the guardianship designations clause if you haven’t already. What this clause basically does is make sure that you have a guardian already picked for your children in the off chance that they’re still minor after you’re gone. A guardian must share your views, have a solid financial backing, and is ready and happy to raise your children. Otherwise, complications could arise later, something that will go against your will- both in the literal and figurative sense.
Some possessions might very well pass to your heirs even when such a thing isn’t dictated in your will. To prevent this from happening, it’s’ crucial that you name a beneficiary or a contingent beneficiary. Moreover, you should note that insurance plans must also contain a beneficiary in the event of you passing abroad. If a beneficiary isn’t named by the time your children inherit your possessions, the court will be the sole entity to manage your funds and their fate. A judge might not be privy to your beliefs, financial and circumstances; thus, their final verdict might not be similar to yours.
7.Letter of Intent
Similar to the tips we’ve mentioned here, a letter of intent’s purpose is to designate what is what’s not to be done with your assets after your death. For example, a letter of intent might dictate how a certain valuable asset should be managed or how to provide funds for your funeral. Unfortunately, a letter of intent doesn’t carry much weight in the eyes of the law, but it’ll give the judge an idea of your intentions and help them make a better decision on your behalf.
8.Healthcare Power of Attorney (HCPA)
When planning for your children’s future, you must think about every aspect of their life-their healthcare plans included. Since it’s impossible to predict what type of medical care they’ll need, you might want to do this in your stead. This is where Healthcare Power of Attorney comes in. This document allows you to pick someone you trust to make all the healthcare decisions that you would’ve made. You’ll also have to identify a backup agent, just in case the person you’ve picked initially is unavailable.
9.Be Mindful of Your State’s Tax Laws
While estate planning is a combination of strategies to minimize inheritance taxes, it won’t do good if people don’t pay these taxes to begin with. Thus, make sure that you account for your state taxes, if there’s any. Some states might levy taxes if the value of the state is below the exemption amount of money, so you can make use of this if your state qualifies for exemption. Some states might also have inheritance taxes, so make sure that the people who inherit your money are aware of these taxes.
With that said, it should be easy for you now to manage your finances. Be sure to always revisit your estate plan as your circumstances change to make adjustments accordingly. You should also revise it carefully every once in a while, as estate planning mistakes are quite common. In fact, the biggest mistake in estate planning is drafting a plan and leaving it at that