Do I Need an Estate Plan?
Do I need an estate plan? The answer is most likely a resounding YES although most people wrongly assume they are too young to have an estate plan.
This is most likely because they don't know what an estate plan is or because they don't think of themselves as having an estate. After all, estates belong to rich people, right? To better understand why you need an estate plan, let's get some definitions straight:
Estate, in this case, refers to your assets (assets = anything of value that you own), whether that be a little bit of cash or lots of cash, investments, property or other valuables.
An estate plan is a checklist of items and things to consider regarding how your affairs (including your children or other dependents) will be handled when you die.
4 Reasons You Need an Estate Plan
Here are 4 good reasons you need an estate plan:
1. Decisions will be made exactly the way you would want them to be made.
2. Your loved ones will be able to afford to carry on without you financially.
3. The inheritance you leave will be higher than without a plan.
4. It will make things much easier for your loved ones, saving time, money and effort.
An estate plan makes sure decisions about your assets and family will be made exactly the way you would want them to be made.
An estate plan specifies exactly how you want your assets to be distributed and to whom in the most efficient way. Without a plan, the courts decide who will execute your Will and how your assets will be distributed. This is true no matter if you have $1,000 or $1,000,000. Sure, if you do not have much in the way of assets, you might think having a Will is a waste of money, but consider that at the very least, a simple estate plan spares your loved ones some extra trouble. See Reason #4. Furthermore, the more assets you have, the more room there is for friends and family to make a claim of entitlement. This can potentially tie things up in court for a long time.
Things get even more complicated if you have children and both you and your partner die. In this case, the courts will decide who their guardian will be, and while you may think the court will mostly certainly appoint (insert the aunt/uncle you have in mind), what happens when another aunt/uncle or grandparents step in and also want to be considered guardians?
An estate plan means the executor of your choosing can handle your affairs quickly and efficiently and exactly the way you want them to be handled. They can get your assets to the beneficiaries you have named and in the case of children, get them settled with the guardians of your choosing immediately.
After understanding reason number 1, do you really need any other good reasons?
A good estate plan will make certain that your loved ones will be able to afford to carry on without you financially.
If you share a home with a partner and/or children and/or dependents, you need to consider how the loss of your income will affect them financially. Can they stay in the same home? Will they still be able to save for an education or retirement? Could they afford the same type of lifestyle? Would it be easier if the mortgage were paid off and there was money left over to cover future costs?
In this case, life insurance must be part of your plan. Contrary to popular belief, life insurance is not expensive and is the best protection against financial ruin for your family. At the very least, get some quotes and find out for yourself.
The inheritance you leave will be higher than without an estate plan.
When you die, your investments are deemed to have been sold that day and that value is reported as income on your final tax return. As you can imagine, this number could potentially be very high if you've been saving for retirement a long time or own a home in a big city. This would put you in a very high-income bracket and you would be taxed accordingly. Furthermore, your estate will be subject to probate tax, which is a tax applied at death to the value of your estate.
In order to reduce the income tax and probate taxes payable, there are several things you can do ahead of time including naming qualified beneficiaries that can take over your plan (usually a spouse or common-law partner) or holding funds in a tax-free savings account. Reviewing your assets with a financial advisor and discussing how you can set things up to minimize taxes payable at death is highly recommended and most of the solutions are free and easy to do.
An estate plan will make things much easier for your loved ones, saving time, money and effort.
This is probably the most important reason for an estate plan, and the reason we hear the least about: you will make life so much easier and less stressful for those you love!
Consider how difficult the days, weeks and months are following the loss of someone important. Being able to manage their affairs as smoothly and as efficiently as possible is a thoughtful gift and an estate plan does just that.
So Yes, You Need an Estate Plan
My final words of wisdom: do not be fooled into thinking you can't afford an estate plan.
There are plenty of affordable options for a last will and testament these days including online options for about $200 such as Willful or Legal Wills. A good place to start is asking friends and family. Ask your financial advisor to make sure your finances are set up to be tax efficient and will rollover to your desired beneficiaries with ease, and without costing you anything.
Set a date and get your estate planning done! Watch for our next blog post on 5 things your estate plan should include.