Often when you hear the word “estate”, your mind goes to the earthly possessions of the ultra-wealthy and high-net worth individuals. However, we’re here to tell you that estate planning isn’t only for the rich; in fact, everyone, regardless of age or financial status, can benefit from planning in advance for your estate.
Without estate planning in place, you may come across many issues and problems on settling your affairs once you pass on or become mentally incapacitated, and the consequences of that could be long reaching for those you leave behind.
So, what exactly is estate planning?
Your assets will be called estate, upon your demise. It is made up of essentially everything you own, including your home or other property, car, bank accounts, investments, life insurance, furniture, and personal possessions. An estate plan gives you a say in how those things are given to the people you care about. It arranges your affairs and leaves a written record of your wishes and intentions. This decision on how and who you want to distribute your assetsshould be made while you’re still alive and able to. The simple fact is that without a plan in place, you won’t get to choose who gets what.
Here are a few reasons why estate planning is important in your life.
1. Protects your beneficiaries
The idea that estate planning only applies to high-net-worth individuals is a thing of the past. Nowadays, estate planning applies even to middle-income families. The objective is to ensure your assets are given to support the person who love and care the most.
If you die without a will, the courts will decide who gets your assets, which is a process that can take years, rack up fees, and potentially get messy fast. The last thing you’ll want to happen is not to be able to decide who receives the property when you pass away without having any control over what happens to it.
2. Protect your children
Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unpredictable. If both you and spouse, while travelling, pass on together, leaving behind your children, who will take care of them? Who gets the custody of your children?
To ensure that your children are cared for in a manner of which you approve, you’ll want to name your trusted guardian in the Will, in the event that both parents die before the kids turn 18. Without a Will that indicate these guardians, the court will step in to appoint a legal guardian/conservator and decide who will raise your children. This court appointed guardian holds the rights over your inheritance for your children and he or she may not be someone you trust.
3. Avoid overpaying in taxes and estate administration cost
Another major reason for estate planning is to transfer your assets upon death or unsound mind at the lowest financial cost. The legal fees for property transfer, stamp duty, loans and etc can be a big hit to your overall estate, which means you will be leaving significantly lesser than what you intended. This cost can be a big burden to your beneficiaries. By properly planning your estate, you will transfer your assets to your heirs with the smallest financial burden possible, making the process easier and less costly for them.
4. Avoid family quarrels
Have you ever heard of families fighting over assets after a loved one dies? Such squabbling can get ugly and end up in court, with family members pitted against one another. It happens more often than you’d think, and you surely don’t want your lack of planning to be the cause of family turmoil.
As part of your estate plan, you can choose someone to be in charge after you die, or should you become mentally incapacitated while you are still alive.
You will also decide who gets what, as well as how and when they will get it. This can help ensure your assets are handled as you wish and keep things from getting ugly and going to court if a family member thinks they have been wronged.
5. Protect yourself
Estate planning is not only about planning for those you leave behind. It can also be used to protect you. These can include a durable power of attorney and healthcare proxy – two important legal documents that ensure your wishes will be carried out if you're temporarily or permanently incapable of handling finances.
A power of attorney appoints a trusted relative, friend or legal corporate trustee to manage your financial affairs when you are physically or mentally incapacitated. A healthcare proxy on the other hand, gives someone permission to make healthcare decisions for you.
Without these directives, also known as a "living will," your assets get stuck and won’t be able to support you financially when you need it the most.
When it comes to deciding how to protect yourself when you are mentally not sound, who will inherit your estate and how it should be inherited, these are big decisions and an important part of life planning. Smart estate planning brings financial wellbeing, from all the points listed above.
However, do keep in mind that an estate plan is only effective if you keep it current. Review your plan regularly – or after major life changes like marriage, divorce, or a death in the family. Keep an eye on changes in tax laws or other financial legislation too. If your estate plan is out-of-date, your heirs could still encounter some of the problems you tried so hard to avoid.
We hope you enjoyed the article.
At SK i-Wealth, we offer a full financial service solution for individuals and companies, including retirement planning services. Our firm’s comprehensive wealth platform and experience supports a team of Financial Integrators with the resources they need to deliver integrated financial solutions according to your needs.