Many Americans assume that if they aren’t rich, and don’t have a lot of assets, they don’t need to establish an estate plan. However, even small estates can run into legal issues when it comes to disbursement of the estate’s assets, especially if there are multiple beneficiaries involved. This is where an estate plan comes into play.
An estate plan allows a person to ensure his property disbursement and health care wishes are followed if he becomes unable to care for himself or passes on. This plan also allows the individual to ensure loved ones are provided for upon his or her death.
Estate planning includes a will, assignment of power of attorney, a living will or health care proxy, and, in some cases, a trust. This combination of documents is important for many reasons:
Health care – Unfortunately many people become unable to care for themselves as they age. By establishing a health care proxy, an individual can identify his preferences on care issues like a do-not-resuscitate order, or nursing home care versus at-home care.
Funeral arrangements – Many people have a preference of where their funeral will be held, if they’re buried or cremated and even if the service is a mourning time or a celebration. An estate plan allows these individuals to determine their wishes for their funeral, which not only ensures it will be performed as they wish, but also takes the burden off surviving family members. The estate plan will also identify how funeral arrangements will be paid.
Beneficiaries – Establishing a clear plan of which child will receive the family china, and who will get the garage tools helps speed up the distribution process and prevent legal issues, which could cost your heirs a fortune.
Taxes – In an estate plan, many individuals will set up living trust or “payable on death” accounts for children or beneficiaries. These types of accounts help spare your beneficiaries from paying huge income taxes on the inheritance.
A lot of planning goes into creating an estate plan, and you should work with
financial advisors and legal team to ensure your estate will be distributed the way you intend. What kind of preplanning did you do when you established your estate plan?