Estate planning is an important part of the tasks you must complete during your end of life arrangements. You may ask, “What is estate planning?” especially if you are only starting out accumulating material wealth and assets.
There are various types of arrangements that can suit anyone’s particular needs, budgets, or family arrangements. Wills and estates are typically the cornerstones of planning your estate and you can approach them in a variety of ways. Methods for estate planning and arranging how you bestow your assets can range from the do-it-yourself types of arrangements to more sophisticated methods such as having hired professionals like attorneys, trustees and will executors.
Estate planning applies to just about everyone whether they realize it or not. Many people have the misconception that having an estate means owning vast, sweeping tracts of land, homes, businesses and other very valuable assets. The truth is that an estate can be something as uncomplicated as leaving behind a checking or savings account, a car, furniture, a pet, and any number of other personal possessions, which you want distributed in a particular fashion.
Estate planning determines what happens when you pass away and leave behind your loved ones as well as your worldly possessions. Most people wish to have a final say as to how those things they have in the possession are distributed to family, friends, charitable causes or similar entities. Planning your estate can include things like deciding what you want given away, and to whom you want them given. Furthermore, you may have requirements for when you want these possessions distributed to their intended recipients. Additionally, your estate planning may wish to make sure that these instructions are carried out in such a manner that they incur the least amount in tax burdens for your intended recipients as well as mitigating any necessary legal fees for court costs associated with transferring your property through the means of a will.
Good estate planning also provides for a host of other matters that are important but may not be so obvious as passing along your belongings. Some of these other matters include:
While planning your estate with a will does provide precise instructions for how you want your affairs managed after you die, it does not provide for taking care of probate. When you pass away and leave valuable assets in your name to heirs or other beneficiaries, they must pass through your state’s probate procedures. Wills and estates passing through the probate process can incur very expensive costs such as legal fees, taxes, and court costs. In addition, this process can take anywhere from a couple of months to a couple of years in duration. Furthermore, excluded heirs may be permitted to stake a claim to an estate. The state controls the probate process for wills and estates, not you or your family’s wishes. The probate process can vary wildly from state to state as well. Additionally, if you happen to have property in multiple states, its disbursement may be subject to multiple probate processes.
Of course, not all that you own and bequeath via wills and estates is subject to the rigors of your state’s probate procedures, either. Some property that is considered jointly-owned or has a direct beneficiary, such as Individual Retirement Accounts (IRAs), 401(k)s, or other annuities, are not subject to the terms of your will and may transfer to the beneficiary without passing through probate. However, should you neglect to name a proper beneficiary in your will or estate for these assets, they then become subject to the probate process and all the expenses as well.
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Many people doing their estate planning prefer to have a revocable living trust in order to avoid probate costs at the time of death, and, in the case of assets in multiple states, it can avoid multiple probate processes. Using a revocable living trust for your estate planning allows you to bring all your assets under a single roof, so to speak, including assets with designated beneficiaries. This type of wills and estates instrument provides maximum privacy, is legal and valid throughout all 50 states and is malleable enough for you to alter or amend at any time you see fit to do so.
The primary reason for planning your estate for eventual death is to have the peace of mind that when you do pass your loved ones are well taken care of. Contracting wills and estates need not be something that costs a great deal of money. This is especially true for those who either do not have a great deal of wealth or property or young families just starting out. Estate planning in these situations can be as simple as having a life insurance policy, naming the powers of attorney for those assets you do have or making clear how you want difficult health care decisions handled and/or burial decisions.
The best time for estate planning is always now. Putting off making these arrangements for a more convenient time may result in never being able to make them and putting your family in the unenviable position of having to figure out what you may or may not have wanted while simultaneously coping with the grief of your loss. This may subject the people you love and care about most to squabbling and further hurt.
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