Estate Planning is not just for the wealthy. Even if you do not have a pricey home, a large stock portfolio, or valuable art to pass on, settling your affairs after you die could have a long lasting and costly impact on your loved ones if you do not have a plan in place. Are you still not convinced that an estate plan is necessary? Consider these four reasons why you should have one to protect your heirs from potentially disastrous consequences.
1. An estate plan saves heirs a large tax bill.
Estate planning is all about protecting your loved ones, which includes shielding them from the Internal Revenue Service (IRS) or the Canada Revenue Agency. Estate planning is essential for transferring assets to heirs in order to reduce their tax liability.
With just a little estate planning, couples can save a significant portion of their federal and state estate taxes, as well as state inheritance taxes. There are also ways to reduce the potential income tax burden on beneficiaries. If you do not have a plan, your heirs may owe money to family members.
2. An estate plan prevents family squabbles.
We have all heard the nightmares. Someone wealthy dies, and a feud between family members begins. One sibling may believe they deserve more than another, or one sibling may believe they should be in charge of the finances despite a history of debt. Such squabbling can turn ugly and end up in court, pitting family members against each other.
Another reason why an estate plan is necessary is to prevent fights from starting. This will allow you to choose who controls your finances and assets if you become mentally incapacitated or die, which will go a long way toward preventing family feuds and ensuring that your assets are handled in the manner that you intended.
It will also assist you in making individualized plans, such as arranging for a child with health issues or establishing a trust for someone who would benefit from not inheriting a lump sum. It can also help you give more to the child who did the majority of the work of caring for you in your later years while paying less to children you maybe estranged from.
One of the most important decisions you will have to make is whether to divide your estate equally among your heirs. If you have children from multiple families or have been married more than once, an estate plan is unquestionably necessary.
3. An estate plan safeguards minor children
Nobody wants to think about dying young, but if you have small children, you must be prepared for the worst-case scenario. This is where the will provision in the estate plan comes into play.
If both parents die before their children reach the age of majority, appoint guardians to ensure that they are cared for in a way that you approve. If there is no will naming these guardians, the courts will decide who will care for your children.
4. Beneficiaries are protected by an estate plan.
If estate planning was once thought to be something only the wealthy needed, that has changed. Nowadays, many middle-class families must prepare for the loss of their breadwinner. After all, you do not have to be a billionaire to succeed in the stock market or real estate, both of which produce assets that you will want to leave to your heirs.
Even if you are only leaving behind a second home, you will not have any say over what happens to it if you do not decide who gets it when you die. That is because the most important aspect of estate planning is naming heirs for your assets, whether they are vacation homes or stock portfolios. Without an estate plan, the courts frequently decide who gets your assets, a process that can take years, incur fees, and become contentious. Finally, a judge has no way of determining which sibling is at fault and which should not have unrestricted access to money. According to the courts, the surviving spouse will not necessarily receive everything.
If you die without a will, which is an essential component of an estate plan, the courts will decide who inherits your assets.
