What is Estate Planning?
An estate plan is a collection of legal documents that dictates what happens to your assets after you pass away or you are no longer able to take care of your estate. Estate planning is the process of setting up these documents, especially around the distribution of your wealth and assets, as well as the payment and mitigation of estate taxes. Estate planning often includes creating a will, setting up trusts and charitable donations, naming an estate executor and beneficiaries, and preparing funeral arrangements. Additional parts of your estate plan might include:
- Setting up guardianship of any living dependents
- Appointing a durable power of attorney
- Setting up annual charity contributions from your estate.
When do you need an estate plan?
It’s never too early to start setting up your estate plan. Once you start accumulating wealth it’s important to think about what will happen to it after you pass away. A common misconception is that you don’t need to plan your estate until you are close to retirement, but that couldn’t be further from the truth. Preparing your estate when you are young gives you plenty of time to work on the details of your estate, as well as peace of mind in case anything happens to you while you are still young. It’s especially important to think about your estate if you have people depending on your income, such as aging parents or young children.
Wills and Trusts
Wills and trusts are both legal instruments that are important to have as part of your estate plan. A will is a detailed explanation of what happens after you pass away, including what happens to your property and money. A trust is a legal entity with specified purposes, and is usually overseen by one or more trustees.
There are two main differences between a will and a trust. A will is public knowledge, meaning that your private affairs aren’t so private after you’re gone. Additionally, wills can be contested in court. Anyone can challenge the validity of your will, which can slow down the court process. Fighting a legal battle over a will can be a long and expensive process. Trusts, on the other hand, are private, and can’t be contested.
Depending on your situtation you may want one or both of these entities as part of your estate plan. Without a will or a trust to explain your wishes, multiple people may try to claim your wealth and property and it can take months to sort through legal complications in court. Writing a will or creating a trust is the best way to make sure that your possessions end up with your choice of recipients.
A new concept in estate planning is determining ownership of digital assets and social media accounts when you pass away. Even if you have already created a will or a trust in the past you may want to have it updated to reflect this. It’s easy for legal documents to become outdated, as the world and our legislation are frequently changing.
Another piece of estate planning concerns sorting through and minimizing estate taxes. When you pass away there are a variety of legal fees and taxes on your remaining assets, such as your savings, investments, and any property you owned. If unchecked, these fees can amount to a considerable portion of your estate, leaving less money for your beneficiaries. A proper estate plan accounts for the inevitability of taxes and works to minimize the amount that your estate ultimately owes. This is often accomplished by setting up charitable trusts and donations to lower the amount that your estate owes in taxes.
An estate plan is something that you should have in place to make your passing easier for your loved ones. When people pass away without an estate plan, their families often spend months sorting through legal complications and requirements. A strong estate plan allows your loved ones to grieve your passing without the stress of financial and legal obligations.
Setting up an estate plan is a complicated process. Having a team to help guide you makes it straightforward and approachable. Wealth Management Powered by Main Street Bank offers estate planning services with financial advisors who are keen on providing you with the best possible plan for your situation. Don’t leave it to the last minute – book a free consultation with a financial advisor today and get started.
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