Why is Estate Planning Important?
Author: John Published Under: Business
Estate Planning is the process of deciding how your estate will be divided up after your death. This is something that is not always easy to think about, but is very important, because without Estate Planning, your family will be left to decide how to spit up your property.
Not only can not having a legally binding estate plan in place cause family arguments, it can also mean that your wishes in regards to who gets what are not respected. Further, the government has an estate tax, which depending on the size you your estate, can be between 18% and 55%, so it is important to consider this ahead of time and try to reduce the tax risk.
What Makes Up an Estate?
A persons estate can mean several things, but in regards to the Government and legal use of the word, it refers to the property a person owns. This doesn't only refer to property such as a car or house, but also other items, such as collectibles, furniture, and, of course, monetary assets
When considering a persons estate, it is easy to think of all the things they own, but it is also necessary to consider their debt and what they owe. This includes credit card debts, taxes, and and other debts, which do not go away simply because someone dies. As a result, all of these companies, organizations, and government agencies will want to be paid, so estate planning involves considering the debt as well as assets of an individual.
It is also important to understand that an estate can grow and change, so when you create a will or other end of life document, it may not fully encompass everything the person owns, especially if the will is created and goes without being updated for some time. For this reason, it is a good idea to keep wills current, as well as writing them in a manner to allow for some unforeseen gains or losses.
An estate not only includes a persons money, debt, and physical property, but also encompasses things you might not yet own, but are due to you.
For example, a person who has won the lottery, while deciding not to take the lump sum and instead take the monthly payments, these future payments would need to be considered during estate planning.
Real Property vs Intangible Property
Often, a persons monetary assets and future assets, which also include stocks, bonds, and mutual funds, are classified as intangible assets, meaning you can not physically touch them, well, at least not right away.
A persons real property, or tangible asset, includes things like real estate property, vehicles, jewelry, and furniture.
During estate planning, intangible assets must be considered and given the same amount of thought, if not more so, than tangible assets. This is because tangible assets are often much easier to understand and locate, while intangible assets can be a little more abstract.
For instance, a person personal interest in a local bakery must be considered, both in regards to net worth and ensuring that the interest is maintained after death.
So What is an Estate Plan?
At its most basic, estate planning involves creating a will, which is a legal document that determines how your property is divided when you die, as well as choosing an executor of the will. The executor, being the person who ensures that the terms of the will is carried out. This provides a clear picture of how you want your property divided and used.
However, estate planning should also take into account things like what taxes are owed, as well as setting up provisions to protect the individual as they grow older or if they become sick. For example, having your wishes known in regard to nursing care and other emergency provisions.
While it can be hard to think about wills and what will happen when you die, it is essential for the proper distribution of your wealth. Also, without a legally estate plan, a persons estate can often be held in a legal limbo, as it can fall under the jurisdiction of state and federal law.