Have you ever thought of what would happen to your assets and resources after you have died? No, you are not dying anytime soon but it is important to learn and know what happens afterwards. Have you heard about Estate planning? If not, then this article is for you.
Jump to a section
- What is Estate Planning?
- Objectives of Estate Planning
- Benefits of Estate Planning
- Tools of Estate Planning
- Who needs Estate Planning?
- Estate Planning Insurance
- Estate Planning vs Will
What is Estate Planning?
Estate planning is organizing the use and management of your assets and resources in the event of death or incapacitation.
In simple words, when you die or are not able to function correctly, estate planning is what happens to your assets, money, and legacy according to the instructions you have laid out.
What is the objective of an estate plan?
People plan their estate for several reasons. However, the main objectives of an estate plan are to;
- Minimize cost after death
- Ensure things go as planned while living
- Maintain a sense of control
- Provide support for family and friends
Benefits of estate planning
1. Provision for your loved ones
Estate planning is a way to provide financially for your loved ones when you pass on. They have a sense of security in terms of being financially provided for. They don’t have to face the strain of thinking of what to do to sort things out when you have done that for them already.
2. Protection for your children
Asides from providing financially for your loved ones, estate planning protects your children. You are assured that the law will protect your children in the event of your passing. They won’t have to be involved in unnecessary contentions with other people.
3. Retirement plans
Estate planning is not only beneficial when you’re dead, but it can also be a great way to plan for your retirement. You get to plan accordingly for retirement and the kind of lifestyle you want to maintain.
4. Reduction in taxes
With estate planning, you can find access to tax reduction strategies that will help reduce the amount of taxes to be paid by your beneficiaries after your death. This way, they can fully enjoy the assets you left for them.
5. Business continuity
When building a legacy, a major factor you need to consider is the continuity of your business. Estate planning lets you make arrangements for who takes over the business and how you want it to be managed over time.
6. Estate valuation
When preparing for estate planning, one of the things you need to do will be to know your financial status—your net worth. What assets do you have? What is their value and how do you intend to distribute them? Planning for all assets and resources that you have helps you to know the total value of your estate.
7. Easier decision-making process
It is easier to make decisions because you already have plans in place and all you need to do is modify them to suit any circumstances at hand.
8. Philanthropic acts
A part of the nature of man is the desire to do good for others within their capacity. Estate planning also helps you to know what you can give to charity and philanthropic activities. This also adds to your lasting legacy after you are gone.
9. Planning for incapacity
Estate planning is mostly associated with death, but that is not always the case. Life is unpredictable. In an event of physical or mental incapacitation, say you have a stroke or mental disorder, there must be someone you trust who can make decisions on your behalf. Estate planning helps you to make arrangements for situations like this and assures you that things will be taken care of.
10. Peace of mind
Lastly, you have a sense of security and peace of mind knowing that you have planned for yourself and your loved ones in the long run. You are also assured that your assets and resources are well taken care of.
Tools of estate planning
- Will: A will is a legal document that is drafted by an attorney that gives directives about how your assets will be distributed, to whom, and when these directives can take effect.
- Trusts: A trust is a legal relationship in which one person transfers the financial benefits of a property to another while keeping the legal ownership.
- Life insurance: Life insurance is a contract between an insurance policy company and an individual or legal entity where the insurance company pays a sum of money to you or your specified beneficiary over some time or in the event of your death.
- Powers of attorney: Powers of attorney are legal representatives that you give the power to make decisions on your behalf in the event of your death or incapacitation.
- Living will: A living will is a specific type of will that states your desires on how you want to be treated in a case of incapacitation. It also informs your family and healthcare providers on ways to handle you.
Who needs estate planning?
It is easy to assume that estate planning is reserved for the rich since they’re the ones with perceived properties and resources. However, it is not only for wealthy individuals. Everyone can benefit from it. A detailed guideline about how to manage your assets could be all it takes to plan for your family after you pass on.
What is estate planning insurance?
Estate planning insurance involves adding life insurance as one of the tools to aid your estate plan. It is usually part of the whole process. Having life insurance can provide flexibility and support for your beneficiaries.
Estate planning vs Will
Although they seem similar, estate planning and will are not the same thing. Both provide instructions about what to do with your assets after your death but estate planning covers a bigger scope than a will. With estate planning, you can have powers of attorney that can appoint individuals to make decisions on your behalf when you no longer can. It also makes provisions for medical care for you when the need arises.
Bottom Line
Estate planning is important and it is not reserved for the wealthy. Seeing its benefits, everyone should try to make arrangements for having an estate plan. It is another way to stay accountable for your money and manage your resources accordingly.
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It’s great that you pointed out how estate planning is a way to provide financially for your loved ones when you pass on. I was chatting with my best friend earlier and he told me about estate planning. It seems pretty interesting, so I am trying to learn more about it now.