Estate Planning Isn’t Only for the Wealthy
Thinking about what will happen to your assets after you pass away can be a daunting prospect. After all, nobody wants to ponder their own mortality, and dealing with money can be a sensitive topic, even among close friends and family. Having no estate plan in place can often lead to difficult decisions for your loved ones, who may not know what you wanted or how you wanted things to go.
As such, estate planning has long been associated with the wealthy. People with lots of money, property, or other valuable assets typically took the time to set up a plan to ensure their wishes were carried out after they passed away. However, estate planning is not exclusively for people with vast wealth at their disposal.
This blog post will discuss why estate planning is essential, regardless of your net worth.
What Is An Estate?
First things first, it's important to understand what exactly is meant by the term estate. You might have heard the term used colloquially to refer to a large property. But in the legal sense, an estate is actually much broader than this.
An estate refers to all of your possessions and assets, including real property (i.e., land or buildings), financial accounts and investments, insurance policies, or other valuables. While wealthy individuals may have priceless art collections or massive amounts of land to take care of, there's much more to account for than money or property.
Your personal possessions could all be considered part of your estate, from your car to your clothes. Additionally, if you own any active businesses or enterprises at the time of your death, these will fall under the umbrella of your estate.
The value of your estate is considered in two cases: when you pass away or declare bankruptcy. The latter scenario, called "liquidation," is typically used to pay off any outstanding debts or obligations.
What Is Estate Planning?
As humans, our demise is, unfortunately, an inevitable part of life. When it comes time for us to pass away, many of us may want our loved ones to not only inherit a portion or all of our estate but also be able to continue living comfortably.
Estate planning is the process that helps you to determine how you want your assets divided up after your death. In essence, it is the act of deciding which assets go to whom, and how they are managed in your absence. The people you choose to inherit your possessions are called beneficiaries, and they can be close family members, friends, or even charitable organizations.
Some common components of an estate plan include:
The Will
A will is perhaps the commonest way to distribute your assets and possessions after you pass away. It is a legal document that lets your beneficiaries know how you want them to be allocated once you're gone, as well as appointing someone to act as executor of the estate. This trustee will manage the estate with your wishes in mind, ensuring that it is disbursed according to your instructions.
If you're concerned about how sensitive this topic can be, take heart in knowing that a will is only legally binding once you pass away. You have complete control over what goes into the document and the ability to change it at any time during your life.
Due to the written nature of a will, it must be created in a legal setting, typically with the help of a lawyer. The administration process, known as probate, ensures that the will is legally binding and can be carried out. Without a will, your estate would be divided according to state law. Most probates are carried out by a probate court, which serves as an impartial mediator in the process.
The will is presented to the probate court for review upon your death. Once authenticated, your beneficiaries can proceed with claiming their inheritance.
Power of Attorney
In addition to making decisions about your estate, there may be other financial matters that you need someone else to manage in your absence. For example, suppose you own a business or other enterprise that requires active management. In that case, it's helpful to have a trusted individual, such as a spouse or child, make these critical decisions on your behalf.
As such, you would create a document called a power of attorney (POA) to specify who has the right to decide on your behalf. This is particularly helpful in cases where you become incapacitated or cannot act for yourself.
Living Will
A living will is a legal document that reflects your wishes for how you want to be treated if you are on life support or in an end-of-life situation. It can also outline your preferences for organ donation and what types of medical treatment you do or do not want to receive.
In essence, it is a written expression of how you wish to be treated in these situations. While a living will doesn't necessarily concern your estate, it can be a valuable part of the overall plan. For instance, a Do Not Resuscitate (DNR) order can be a part of a living will, which is a crucial step to take if you don't want to be kept alive on life support.
Estate Planning Is About More Than Just The Money
While estate planning is often thought of as all about money, it's much more than that. In addition to the legal aspects such as wills and trusts, it can be about family relationships, taking care of loved ones after you're gone, and providing a legacy for future generations.
In addition, incapacity planning is an integral part of estate planning that many people neglect. This refers to the process of making decisions about your future in the event that you become ill or otherwise unable to make decisions for yourself. It's not just a question of who will be in charge but also what kind of care you want to receive and how you want to be treated.
Finally, estate planning is helpful for the people you leave behind. They will most likely be overwhelmed and confused when faced with the responsibility of managing your estate, so you should help them by making the process clear and organized. Whether you leave specific instructions or simply a general outline, your loved ones will be thankful for your foresight and planning in this difficult time.
Why Estate Planning Is Not Just for The Wealthy
As mentioned above, estate planning is not just for the wealthy – it's an important part of financial planning that anyone with assets or dependents should consider. For one thing, many people simply aren't aware of how much they will leave behind when they die. Even if you don't have a lot of money or property, your loved ones may still be entitled to certain benefits.
For instance, life insurance is a way to provide financial security for your loved ones in the event of your death. Upon your death, your beneficiaries will receive money from the insurance company that can help them through their grief and pays for funeral costs, bills, mortgage payments, or other expenses.
In addition, if you have minor children or dependents who rely on your income to survive, they will also benefit from estate planning. Suppose you are leaving $50,000 to your only child, who is not financially adept. A clause in a trust can be written to stipulate that the money must be used for a specific purpose, such as education. Or, it can be divided into smaller increments that can be used each year until the money is gone. This will ensure that your child will not squander the money but use it responsibly.
Lastly, estate planning can help to prevent family conflicts and infighting after you're gone. Emotions run high when faced with losing a loved one, and even a small estate can cause conflict. By clearly outlining your wishes, you can help to reduce the stress and heartache that your family will go through as they grieve.
Who Can Benefit From An Estate Plan?
At the end of the day, everyone can benefit from estate planning. While it is especially important for those with assets, even those with just a few modest items should consider estate planning.
And while it's often thought of as a concern for older generations, younger people with assets or dependents will also benefit. Life is unpredictable, and everyone should be prepared for the worst. It's best to take a proactive approach and think about your future needs and goals rather than leaving things to chance.
Contact Sarah S. Shepard LLC Today
If you're thinking about estate planning, don't be deterred by the myths surrounding it. It's not just for the wealthy, nor is it something only older generations need to worry about. In fact, it's a crucial part of financial planning that everyone should consider.
Sarah S. Shepard LLC is a trusted estate planning firm in Huntsville, Alabama. With years of experience serving clients from all walks of life, we can help you create a compelling and customized plan to meet your unique needs and goals. So why wait? Contact us today to get started!