What Is Estate Planning?
You've probably heard of estate planning, but if you're like half of all Americans, you've never actually prepared for the future. Although estate planning may seem intimidating, it's a critical part of providing for your loved ones and survivors. Here are the basics you need to understand.
What Is an Estate?
Your estate is generally considered to be everything that you own when you die. Although the term is often mistakenly assumed to indicate that someone has significant wealth, estates include all properties regardless of their size. For instance, a typical estate might incorporate:
- Personal properties like vehicles, heirlooms or artworks,
- Life insurance policies,
- The rights to annuities, such as structured settlements,
- Retirement funds,
- Real estate, homes or commercial properties,
- Savings, checking and investment accounts, and
- Securities such as stocks.
What's Involved in Estate Planning?
One easy way to think about estate planning is to regard it as a kind of death planning. When you die, the assets in your estate must be dispensed in some form, and you won't be around to provide such guidance. Whether these possessions go to your children, get swallowed up in taxes or cause a contentious legal battle that tears your family apart all depends on your estate planning strategy.
Estate planning also addresses the time leading up to your death. For instance, if medical circumstances cause you to lose the capability to make your own decisions or communicate your wishes, an estate plan can provide caregivers and others with guidance on what actions to take. Similarly, it may also provide for your funerary arrangements and designate payment plans for the associated expenses.
Choosing an Estate Strategy
Different people have different needs and desires concerning what happens to their possessions after they die. For instance, you may have children, a spouse or other loved ones you'd like to look after. You might want to contribute to a charity, or you could simply want to minimize the amount of taxes that your inheritors pay when they gain the rights to your holdings.
Common estate tools, like wills, trusts and other arrangements, have various pros and cons that might make them appropriate for achieving your goals. Among other things, your plan can:
- Designate who should receive your property and in what fashion,
- Detail how property will be structured and disbursed so as to minimize tax obligations and delays in beneficiary payments,
- Plan out disbursements and payment mechanisms in order to avoid costly, stressful probate proceedings, and
- Minimize your beneficiaries' legal burdens.
Why Is Estate Planning so Important?
No matter whether you consider yourself to be in good health or believe that your assets aren't worth fighting over, it's impossible to accurately anticipate the events of tomorrow. Failing to designate what happens to your possessions after you die places a massive burden on your survivors, and courts rarely make decisions that you'd find acceptable.
Estate planning is vital because it does far more than protect your property from a cold legal system. It protects your family from having to fight over material goods in their time of grief and ensures that even if you're gone, your legacy will live on in some fashion.
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