When it comes to the future, most Americans have a blind spot: estate planning. Maybe it’s because of an unwillingness to think about mor-tality or a sense that wills and trusts are only for the wealthy that people put off this important financial planning task. Whatever the reason, there are a lot of estate planning slackers out there. That’s a problem, because not having an estate plan could put your family’s financial future in jeopardy and cause other serious consequences. Here are five facts everyone should know about estate planning.
1. Everyone Needs an Estate Plan
Yes, estate planning is absolutely necessary for the wealthy. But the rich are far from the only ones who need to think about the future. Pretty much everyone needs an estate plan, regardless of how old they are or how much money they have, and can benefit from putting documents in place that clarify who should receive their property after they die, what kind of healthcare they’d like to receive if they were incapacitated, how surviving family members will be provided for, and more. Estate planning is especially important for those who have children, complicated family situations, special needs family members, or own certain types of assets (like art, intellectual property, or a small business).
2. A Will Is Not Enough
Wills are an important part of estate planning, but they are just one piece of a larger puzzle. Wills clarify who should receive your assets after you die. But you may also need other documents, like a living will, which explains what kind of medical treatment you’d like to receive if you can’t make decisions on your own, a healthcare proxy (a person who will make
healthcare decisions on your behalf) and a power of attorney (a person who is authorized to make legal decisions on your behalf when you’re not able to). In some cases, you may want to set up trusts to provide for your heirs or charities. An estate planning attorney can help you understand which estate planning documents are necessary in your situation.
3. Your Beneficiary Designations Supersede Your Will
Many people assume that the instructions in your will take precedence over any other directions regarding their estate. That’s not always the case. Beneficiary designations on retirement accounts, life insurance policies, and bank accounts aren’t superseded by your will. So, even if your will leaves your entire estate to your surviving child, a retirement account that names your brother as the primary beneficiary will still go to your sib-ling. That’s why it’s important you review your beneficiary designations regularly and update them when your life changes (birth of a child, divorce, etc.).
4. You Can Leave More to Your Heirs if You Structure Your Estate Properly
If you have a sizable estate —
one that exceeds the $11.7 million federal estate tax exemption in 2021 — you may want to look into strategies that will allow you to pass that money to your heirs in a way that avoids estate taxes. There are numerous legal techniques you can employ to do this, such as transferring assets and property to a trust, making gifts during your lifetime, setting up family foundations, or leaving money to charity. Even those with smaller estates should keep taxes in mind. Did you know, for example, that life insurance proceeds pass tax-free to beneficiaries? That’s important to keep in mind when you’re considering how to make sure your spouse and children will be provided for if you die unexpectedly.
5. It’s Important to Talk to Your Family about Your Estate Planning Decisions
Disagreements among family members about how to distribute an estate are far from uncommon. Often, those squabbles break out over unexpected or unclear provisions in the deceased’s estate plan. If one member of your family feels he/she isn’t getting his/her due, it can make the process difficult for everyone. Drawn out legal battles that eat away at the wealth you’ve accumulated — and wanted to leave to your heirs — may result. Even if you think your family can handle your estate civilly, it may still be a good idea to sit down as a group or with individual family members to discuss your wishes and explain your estate planning choices. If you plan to leave more of your wealth to one child than the other, make sure your children know about that so they don’t end up feeling blindsided and betrayed after your death.