For adults of any age, it’s important to make an estate plan. This can be no more complicated than a simple will, but it matters. It’s even more essential when you have spouses, children and other people who depend on you. While there are many important financial reasons to have a good estate plan, from taxes to debt management, the most important reasons are about taking care of the people you love. Here are five benefits of estate planning.
A financial advisor can help you create an estate plan to protect your assets for your beneficiaires.
1. Family Law Dispositions
In your will and estate plan, you handle more than assets. Your estate plan is about managing all of your legal rights and responsibilities. This includes guardianship of any minor children or other dependents.
In your estate plan, you will to name your children’s guardians in case something happens to you. This is not just about death, but also incapacitation. For example, say that you are under anesthesia. A good estate plan will establish who can pick your children up from school while you’re unavailable. But, this is also about who will raise your children if something permanent does happen.
This is not just about paperwork. You need to have this conversation with your chosen guardians, to make sure that they’re willing to adopt your children and able to raise them in your stead.
It is important to make sure that your debts are paid and loved ones financially taken care of. But it’s critical to make sure that your children have parents.
2. Living Will
Your estate plan can also include a living will. This is a document that gives temporary power of attorney to someone so that they can make decisions on your behalf if you are ever incapacitated. This can be useful in extreme cases, like if you are in an accident, or in mundane matters, like if you are under anesthesia for routine care.
This is more about taking care of yourself than anyone else. If you are incapacitated, you don’t want any confusion. Make sure the doctors know who has your authority, and make sure that person knows what you want.
3. Caring for Family and Dependents
Without a will and estate plan, state law will distribute your assets. While this will typically assign assets to your closest family member (spouse first, followed by children), that may not always be in their best interests. An estate plan can make sure that your money and property go to the people who need it most, keeping homes, retirement accounts, bank accounts and other assets in the right hands.
Estate planning can also include life insurance. A good life insurance policy gives your family, dependents and loved ones money that they might need after you are gone. This is how you can ensure that they are financially protected and you shouldn’t neglect it.
4. Debts and Obligations
Managing debt and other liabilities is an essential part of managing an estate. After you die, the executor of your estate will pay these bills on your behalf. Without instructions, they will do so based on their best judgment.
A well-planned estate can include instructions for how to pay these bills. Your estate plan should clearly establish all of your major debts and how your executor should pay those bills: What cash and assets should they use? How should that debt be managed? Do you need additional life insurance to cover any major debts in your absence?
You don’t want your executor liquidating assets that your family will need. Handle debt clearly, so that your loved ones don’t need to figure that out in your absence.
5. Protect Important Assets
Whether it’s a home that has been in the family for generations or a retirement account that your spouse will depend on, there are many reasons to care about how specific assets are distributed after you’re gone. An estate plan can help you plan for this, ensuring that important property isn’t randomly distributed according to state law but rather managed according to the needs and wishes of your loved ones.
Bottom Line
An estate plan manages your legal rights and responsibilities, particularly your assets, after your death. It is important for any adult, particularly those with families and spouses.
Estate Planning Tips
- A living trust is an estate planning vehicle that protects your assets against taxes and probate after you die. Here’s how much it can cost you to set one up.
- A financial advisor can help you build a comprehensive retirement plan. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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