To many people, "estate planning" is something that only wealthy people with a lot of assets have to do. But is it true?
If you think of the word "estate," what comes to mind? A big mansion on a large tract of land? A fortune in stock options? In truth, virtually everyone has one. An estate is the sum total of your assets less liabilities that you leave behind. After you die, the law has procedures in place to assist your survivors and the probate court in how those assets are distributed and those liabilities satisfied. It is important to ensure that you have a plan in place to dispose of your estate with as few complications as possible for your survivors. And that is the essence of an estate plan -- some direction for the disposition of your assets.
If you look at what should be included in an estate plan, you can see that everyone can check at least one or two items off the following list:
- Instructions for distributing your assets when you die, via will and/or trusts
- Naming beneficiaries for transfer-on-death assets (e.g., retirement accounts, bank accounts, life insurance)
- Guardian for minor children and manager for their inheritance
- Instructions for your care should you become disabled or incapacitated before you die (advance medical directive)
- Instructions for transfer of business interests at retirement, disability or death
- Provide for protection from creditors to both the estate and your survivors
- Minimize taxes, court costs and unnecessary legal fees
And if any (or all) of the above apply to you, you need an estate plan! If you don't have one when you die, the state will distribute your assets to your heirs and creditors according to law, and it may not be what you have in mind.
An estate plan begins with a will and/or trust, plus an advance medical directive. It also contains information on who owns what, how your major assets are titled (e.g., real estate, automobile, business), who would receive proceeds from retirement accounts and government benefits like Social Security, and how your debts should be paid to creditors. Younger people are less likely to have a lot of accumulated wealth, but as a result they have much more to lose than someone more secure financially, especially if there are children involved.
So whether you own a giant mansion with an ocean view or rent a one-bedroom apartment with three roommates, you have an estate. And what happens to that estate after you die is determined by what you do while you are still alive.
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