5 Reasons Why Estate Planning is Important

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Estate Planning. No doubt you read those words and immediately were transported to a happy place in your mind and thought I could think and talk about this all day long for days on end.

For the other 99.8 percent of us, that probably didn’t happen.

A safe bet to assume many probably don’t really know what estate planning is, or the benefits it provides, beyond knowing (or suspecting) it has something to do with our death or that of a spouse or family members. As such, it’s understandably a difficult topic for many.

Today we’re going to define what it is, discuss five key reasons you need an estate plan and introduce four critical elements of a well-constructed plan that can benefit you, your beneficiaries and your assets, both while you are still alive and kicking, and thereafter.

People tend to hear the phrase estate planning and tune out or run for the door. They don’t know what it is exactly, but most understand it involves thinking or talking about their demise.

Fair enough, it can be a tough area to discuss or even think about. But if you have any assets, want to control who gets what when you’re gone, desire to keep the courts out of the equation, and hope to minimize what Uncle Sam takes, you may want to consider an estate plan.

What is an estate plan?

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Simply stated, estate planning is the process of creating a plan in advance that addresses goals, desires, and concerns you might have concerning your assets.

A good plan is intended to protect your assets (against lawsuits and creditors), specify the people or organizations that will receive those assets after you die, determine who will control those assets while you are alive but incapacitated and/or after you die (estate executor), and more.

In creating an estate plan while you are alive and of sound mind to do so, you make it easier to carry out your plan later.

Why do I need an estate plan?

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No matter how much you do or don’t have in terms of assets, ranging from a vehicle and a home to retirement accounts, savings, collectibles, lifetime season tickets, real estate, and much more, you do have an estate.

With that established and moving forward, chances are you worked hard to accumulate your “stuff,” otherwise known as assets, and there’s probably an even higher degree of likelihood you’d like to protect them and hold on to them and then determine what happens to them if you somehow become incapacitated, or…after you die.

For all those reasons and more, you need an estate plan.

To provide a little more context on why you should seriously consider an estate plan if you haven’t already worked with a retirement planner or financial advisor on creating one, let’s look at five key areas where a plan will benefit you:

Avoid Probate:

Just as with the phrase estate plan, the word probate flat out scares everyone. First, if your estate is in probate, you are deceased. Not a pleasant thought and something most probably prefer to avoid. While we can’t escape death, we can avoid probate if we have a properly constructed estate plan is in place.

An estate plan can ensure your plans and desires are carried out without the intervention of a court.

Minimize Taxes:

Death and taxes… another one of those phrases we all dislike. Again, the first half can’t be avoided, but when it occurs we don’t want to fall victim to a scenario in which a significant amount of our estate gets eaten up by the tax man.

Without a plan in place utilizing advanced estate planning techniques and tools, and potentially trusts, insurance and other elements, seeing a significant portion of your estate go to Uncle Sam is exactly what can happen.

Avoid Family Drama

If you’ve ever heard of, witnessed, or worse yet, been party to a family fight that evolved from the passing of a loved one, you probably don’t need to be convinced of the need for an estate plan.

The fact is this is a scenario that happens all too often and can seriously tear a family apart, yet it is avoidable. Even if you have a last will and testament in place, your family and/or beneficiaries can end up in court, especially if there is disagreement amongst the various parties, in which case one or more might decide to contest.

Problems can arise even prior to the passing of the family member, with issues such as who should control the estate if the person is incapacitated.

All of this equates to wasted time and dollars that could have been avoided through even simple estate planning.

Protect Assets:

This is a “sue-happy” country loaded with lawyers standing ready and able to take you to court for the benefit of their clients. This can range from somebody doing work for you who falls off a ladder to the dog walker you employ who gets bitten by your precious Fido, a creditor, the kid down the street who trips over a hose in front of your house and breaks his arm, and countless other people who are aggreged and after blood for any number of reasons.

Whatever the case, the risk increases as you accumulate more assets and your estate grows in value. If and when something does happen (whether valid or not), you can bet you assets someone might come after you – suing someone with assets in this country is as American as apple pie. More so if they know you have a large estate.

Even if you have an estate plan in place, that won’t necessarily protect your assets. You need to meet with a professional(s) who can use tools and implement strategies, structuring your estate plan to ensure your assets cannot be targeted and taken.

Protect beneficiaries:

When it comes to your beneficiaries, you might want to consider them and how suddenly coming in a sizable amount of money might affect them.

Adult beneficiaries might not be so adult in dealing with money, in which case you might want to institute some safeguards regarding their access to the funds or accounts, how much they can spend each year, etc. Without a plan in place, you can’t look after their well-being.

Minors present their own challenge, as you may be forced to deal with the courts who will assign an executor and possibly others to help administer the assets and accounts for the child. This can bring with it tremendous expense over the years and work to diminish a large proportion of the funds.

Estate Planning Elements

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So now that you know why you need an estate plan, it’s time to briefly review the four elements that are generally a part of a comprehensive, holistic estate plan that meets your needs and goals and maximizes what gets passed on, all the while protecting assets and beneficiaries.

Insurance

When it comes to estate planning, life insurance can be a unique tool that offers many benefits – both living and death – as well as potential tax advantages and flexibility.

One of its key uses can be that of helping beneficiaries if the estate does owe taxes, which normally must be paid within nine months of the death of the estate owner. Given that the death benefit is tax-free, this can be an efficient way to cover taxes, if due. Other assets within the estate might take significant time to be able to access or liquidate for use in covering the taxes and might trigger tax issues for the beneficiaries.

Additionally, life insurance can be used to provide for things like supplemental tax-free income (for example – tax-free policy loans), long-term care funding, “safe” growth strategies, and potential asset protection.

Legacy

Passing on assets to loved ones or a church or other organizations is important to many people. Transferring assets in a manner that minimizes the burden (ex. eliminates family drama, sidesteps probate, etc.), protects against issues that can arise (e.g., unexpected medical emergencies in retirement that can seriously impact savings), maximizes assets, and reduces or even eliminates estate taxes is a major goal of legacy planning.

Proper legacy planning will likely involve a number of professionals, such as a CPA, tax attorney, trust company, and in our view a retirement professional. You can learn more about legacy planning by reviewing the Oak Harvest Path.

Asset Protection

Goes without saying you probably would like to protect your assets against creditors and entities that might try to sue your estate. Fortunately, there are numerous tools and strategies that can help protect your assets.

Umbrella insurance is one example. It can be purchased inexpensively and provides insurance against accidents (think contractor getting injured doing work at your home) and other scenarios. Trusts are another tool that can be used as part of an asset protection strategy.

Trusts

Chances are you’ve heard of trusts, but if you’re like most people they are a mystery to you. There are in fact numerous types of trusts that can be created by a good lawyer that can be customized for you and your family’s specific scenario and needs.

Two of the most common are revocable living trusts and irrevocable trusts.

When it comes to revocable living trusts, they provide flexibility in that they help your estate avoid probate, allow for a person to act on your behalf in terms of managing your assets if you are incapacitated, offer more protection against a challenge by beneficiaries than a will, and more. But they don’t provide asset protection.

Regarding an irrevocable trust, one of the key benefits is the fact they do provide asset protection because your assets are held outside of your estate, which protects them against lawsuits and creditors. They can help eliminate estate taxes (for assets in the trust), be used to maximize the number of assets passed on to beneficiaries, and provide you the ability to restrict access to beneficiaries in a manner you see fit.

There are a number of types of irrevocable trusts, including charitable, dynasty and life insurance.

When it comes to trusts in particular, you need a lawyer to help create one based on your goals, needs, and your family scenario. You also want to work with a retirement planner or financial advisor.

Conclusion

When it comes to estate planning, there are numerous elements that have to be considered that can help you and your beneficiaries. The benefits of an estate plan can include maximizing the dollars or value you pass on, reducing or eliminating taxes, ensuring that the process is quick and easy, allowing for some control, protecting your assets, and helping your loved ones or organizations that are important to you in terms of avoiding probate and the courts.

We believe estate planning is part of a holistic retirement plan, requiring the guidance of a retirement planner and investment advisor, who will work in conjunction with a good legal council and a CPA, ensuring the estate is protected and able to pass on your assets in the manner you prefer.

If you’d like, we can review your estate and help you create an optimized estate plan that will meet your future needs and goals while protecting your assets and ensuring that when the time comes your assets pass on to your beneficiaries in the best and most expeditious manner possible.

If you’re ready to take the next step and talk to a team of financial advisors and retirement planners who put your interests first, Schedule a call today!

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