When people hear the words “estate planning,” they may automatically assume it’s only for the uber-wealthy, but the reality couldn’t be further from the truth. Yes, those who will have taxable estates (estates worth more than $11.58 million for individuals, double that for couples) need to do extra planning to help minimize the tax impact and provide asset protection for their families. However, even if you do not anticipate having a net worth above $23 million, estate planning could still be for you. Even if you have no assets to speak of, estate planning is still an important part of your financial future because it provides control over who will handle your medical and financial decisions, as well as who will inherit money and property.
Here are five reasons to consider estate planning:
1. Revocable trusts
A revocable trust allows you to control your assets, change the trustee of your assets or sell assets while you are living. You can use a revocable trust to keep important information related to your assets and liabilities private rather than openly shared with the public through probate. Revocable trusts can even help you avoid probate altogether, which can be a very costly and time-consuming process if you own assets outside of the state (e.g., vacation homes).
2. Power of attorney for healthcare
Who will make your life decisions if you suddenly become unable? If you fall ill and cannot make your own medical decisions, a healthcare power of attorney allows an appointed contact the ability to make medical choices for you. You should select a close family member or friend who understands your wishes as your healthcare power of attorney. Some states automatically extend these rights to close family members regardless of whether a power of attorney for healthcare is appointed, but it’s best not to take chances. Make the decision while you are still in sound health.
3. Power of attorney for finances
Who will make your financial decisions if you cannot? Financial power of attorney, or durable power of attorney, allows an appointed contact, usually an adult family member, the ability to make financial decisions on your behalf if or when there comes a time you are incapacitated. It can also help anyone over the age of 18 receive emergency help from a parent or sibling to manage their finances. Without a durable power of attorney, no one has the right to manage your financial or legal affairs, and a court-appointed conservatorship will likely be necessary. Do yourself a favor, and you can make an already difficult situation less stressful for your family by appointing a durable power of attorney.
4. Guardians for your children
If you have children, a guardian must be appointed to care for them in the event both parents pass away. Understandably, this can be a difficult decision to make, particularly if you have a lot of close relatives. However, it’s better to appoint a guardian that matches your values and wishes for raising children rather than have the state or your family fight over who should care for them after your passing.
A trust provides more control over who receives your money and when they can receive it. If you have life insurance, you’ll want those proceeds to go to trusts for any minors. Trustees also decide who will make financial decisions for your children. Have sentimental items in your family? A trust also allows you to document how you want those items distributed. A trust can reduce family arguments and prevent undue stress, so it is better to have household and sentimental items included in a trust.
While it may be unpleasant to prepare for these scenarios, an estate plan can protect your assets and your loved ones. Estate plans are not just for those with an ultrahigh net worth. Estate plans can be beneficial for those who are young, old, wealthy and lower-income, and for everyone in between. Take control of your and your family’s financial future with a thoughtful estate plan.
Cam Goodwin is President & Managing Partner at HawsGoodwin Wealth, delivering financial planning and wealth management services that enrich clients’ lives.