Estate plans aren't just for deciding how to avoid probate or reduce taxes. They are critical documents that dictate how common financial and health care decisions should be made if you pass away or become incapacitated.
The idea of “estate planning” is something that many people tend to ignore. They think it's a task that only the “rich” need to take care of. However, nothing could be further from the truth. Deciding how to distribute assets represents just a part of the estate plan's purpose.
A more accurate way of looking at an estate plan is to recognize that it's not about the distribution of wealth on behalf of someone else. Rather, it's about carrying out the wishes of someone who has died or is otherwise unable to carry out their own wishes. In other words, it's not about money; it's about choice and respecting a person's right to decide things for themselves.
Almost everyone should have an estate plan. If you're someone who literally couldn't care less as to what happens to you when you die or become incapacitated, then you probably don't need an estate plan. This means that you don't care what happens to your personal belongings when you die or that medical decisions you do not want could be made against your will.
But most people care about these things. Even those without a long-term partner, spouse or children will still care about where they should be buried, the level of medical intervention they desire or who should receive their personal property and effects.
Without an estate plan, you can't be sure that any requests will be carried out as you desire. Despite this fact, many people lack any sort of estate plan, especially those of the younger generations.
|Percentage of Individuals Who Have at Least One Estate Planning Document in 2020|
|Individuals age 18-34||16.4%|
|Individuals age 34-54||27.2%|
|Individuals age 55 and older||47.9%|
There are a host of other reasons to create an estate plan besides the more well-known goals of reducing one's tax liability or avoiding probate. Here is a look at five key reasons that will apply to almost anyone.
Most people, during at least one point in their lives, will be physically (or legally) unable to make certain decisions or complete certain tasks. For example, for many people, their deaths do not occur suddenly. Instead, there will be a period of time where they are unconscious, but still medically alive.
Maybe you're traveling overseas and your spouse needs to take care of a utility bill in your name. Or perhaps you get into a serious accident that renders you unconscious.
The default rule is for medical professionals to do everything they can to save your life, even if that means leaving you physically alive, but unaware of the world around you for the rest of your life. Is this something you want? For some, the answer is yes. For others, it's no.
Finally, there may be a situation where you're in a coma for several weeks. You eventually come out of it and make a full recovery. But while you are in a coma, who will pay your mortgage or rent? How about your car payments? Who will have legal and physical access to your home to feed your pets, turn off your coffee maker and make sure the heat is on so the pipes don't freeze in the winter?
If you find yourself in any of these situations and have someone in mind to handle your affairs, will the law allow them to act on your behalf without an estate plan? In some situations, it's possible. You might have a preferred child, spouse or parent who the law will automatically assign as your legal representative. But for many people, the law's default designation is not who they want to act on their behalf.
We'd all like the world to think we have a perfect family, but for most of us, that's far from true. And for some people, they will have spouses or children that they have strained relationships with.
Other families might get along perfectly well, but due to remarriages, there might be a blended family consisting of biological and stepchildren. The law will treat them a particular way in relation to you. But those default rules may not be what you want.
Even if you don't have any high-value assets, that doesn't mean you don't care who gets them. You might have a clunker of a vehicle in your garage that doesn't even run. But its sentimental value is huge and you've always wanted your niece who dreams of becoming a mechanic to eventually have it. But if you die without an estate plan, it'll most likely go to your spouse, parent or child instead.
There might even be a situation where you have multiple children who have an equal right to a single piece of property. If only one of them wants it should you pass, things will work out. But what if all your children want it? Are you OK with a court battle when they fight over who gets it?
For individuals with children, this might be the single most important reason to have an estate plan. If you and the other parent of your child pass away or become incapacitated for a period of time, who will take care of your children? You might have several family members, any of whom you believe will care for your child just fine. But many people aren't so lucky. Adults also should take steps to prevent the need for a court-appointed guardian to act on their own behalf should incapacity or a debilitating accident or illness strike. Adults can authorize powers of attorney for health and finances and a successor trustee to serve as surrogate decision makers should the need arise.
Estate plans aren't just good for deciding who will take care of your children. They can also help provide them with financial protection.
For instance, you could have a special needs child that is currently eligible for public assistance. But what happens if you pass away and they inherit your assets? In many situations, this will result in the loss of these public assistance benefits. To avoid this, you can set up a trust that makes it possible for your special needs child to still inherit what you've left them, but allow them to keep their eligibility for government assistance.
For many people, having no estate plan is a bad plan. It will lead to unnecessary litigation, probate, confusion, anxiety and your children not getting the care that is best for them.