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  • How Estate Planning Works
  • Why Estate Planning Matters
  • Key takeaways
  • How many of us could benefit from an estate plan? For that matter, what is an estate plan, and how does it differ from a will?
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What is Estate Planning ?

Estate planning is the process of setting up a clear set of instructions about how your property and assets will be managed, both during the course of your life (if you are unable to care for yourself at any point) and after your demise. It’s primarily designed to protect your family and the people you care about, as well as charities and social causes you support. Despite the common belief that estate planning ends with writing a will, this dynamic process is actually far more extensive, and can be used for more than just the proper disposal of your assets. It can help you meet your financial goals and objectives, with a holistic approach that includes tax, business and medical planning.

How Estate Planning Works

Many people think they don’t need to do any sort of estate planning, and they think that the existence of a simple will does the job. However, wills are simply  legal documents that express the decedent’s intentions for burial and to whom he or she wishes to pass money and property (the estate) when he or she dies.  A judge has to allow the transfer of that money and property from the decedent’s accounts to the beneficiaries’ accounts. This procedure is known as probate,  and it opens the door for relatives or third parties to contest your will and for a judge to misinterpret your wishes, both of which can tie up an estate in court for years. Furthermore, probate fees can cost thousands and thousands of dollars. There are executor fees, court fees, recording fees and attorney fees, and in many cases, these fees must be paid as the estate is probated, meaning that the heirs will need to come up with the money fairly immediately upon the person’s death.  A will also does not alleviate the problem of estate taxes.

Why Estate Planning Matters

Estate planning is for everybody, not just the wealthy. Without an appropriate estate plan, friends and relatives can spend a lifetime (and their life savings) battling over your assets. It can be intimidating, but it is a necessary step in ensuring that your assets end up where you want them, without the interference of the IRS or third parties. Establishing a trust is a great way to mitigate some or all of the estate taxes that would otherwise be owed upon your death. A trust allows a person to transfer  legal title of his or her property to another person while they’re still alive, potentially saving thousands of dollars in taxes. A trust also gives the trustee (the person acting on behalf of the decedent) the authority to distribute assets immediately to the beneficiaries based on the terms of the trust. No court is involved, so there are no probate fees and no public record of the value of the estate. Many financial advisors urge clients to have trusts, especially those who live in states where probate fees are especially high or if the client owns a home or real estate. Trusts are not for everyone, however, so it is important to seek proper financial advice.

Key takeaways

Most people with assets or a family should execute a will. You may or may not need an estate plan, depending on the size of your estate and other factors. Learning more about estate taxes in your state of residence will help you evaluate whether or not an estate plan is right for you and your family. A key advantage of an estate plan is its power to minimize the probate process and its expenses, delays, and loss of privacy. Charitable giving and business succession can be incorporated into an estate plan. Estate planning can be a neglected part of financial planning. It’s easy to delay answering uncomfortable questions such as “What happens to my assets and my  loved ones when I die?”, and even fewer have an estate plan.

How many of us could benefit from an estate plan? For that matter, what is an estate plan, and how does it differ from a will?

A will may be a relatively simple document that sets forth your wishes regarding the distribution of property; it may also include instructions regarding the care of minor children. An estate plan goes much further than a will. Not only does it deal with the distribution of assets and legacy wishes, but it may help you and your heirs pay substantially less in taxes, fees, and court costs. You should always consult a legal and/or tax advisor to discuss your unique situation to determine what may be a best approach for you.

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