The Four Main Reasons Why You Should Have an Estate Plan

undefinedWhen we think about it, we all plan for the things. Whether planning out our next vacation, which car to buy, or even where to go out for dinner, we take the time to do so because we want to make sure that these endeavors go the way we want them to - we want to make certain we get them right. But when comes to having an estate plan - deciding who will inherit our assets after we’re gone – we often don’t seem to ever get around to it.

While estate planning may not be as fun to think about as booking a trip or checking out restaurant reviews, the important truth is that, without an estate plan in place, we will not be able to decide who gets everything that we worked so hard for.

Consider these four reasons why you should have one, in order to avoid potentially devastating consequences for your heirs.

  1. Estate planning allows you to choose who gets what.
  1. Estate planning affords you the chance to name your children’s guardian in the event of your early death.
  1. Estate planning reduces taxes on what you leave behind.
  1. Estate planning minimizes the chances of family strife and ugly legal battles.

1. An Estate Plan Protects Your Beneficiaries

Estate planning was once considered something that only wealthy people benefited from, however that is no longer the case. Common assets such homes, furniture, jewelry, cars, bank accounts, insurance policies, investments and retirement accounts are all significant assets that you will want to determine how they will be passed on to your heirs. No matter how much or many assets you’re leaving behind, if you don’t decide who receives the property when you pass away, you won’t have any control over what happens to it.

That’s because the main component of estate planning is designating heirs for your assets. If you die without a will, which is a vital part of an estate plan, the courts will decide who gets your assets. This can take years, be very expensive and get ugly. After all, a court doesn’t know how you wanted to divide things or about any special distributions you wanted to make. They just have it go according to a set schedule that cannot be changed.

2. An Estate Plan Protects Young Children

Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unthinkable. Whether married or single, in order to ensure that your children are cared for in a manner of which you approve, you need to have in place a will or other estate plan document that names their guardians. in the event that both parents die before they turn 18. Without such a will, and in the event that both parents die before the children turn age 18, the courts will again step in. And it’s not how to divide up your assets, it’s to decide who will raise your children.

3. An Estate Plan Can Save Heirs From a Big Tax Bill

Estate planning is all about protecting your loved ones, which means in part giving them protection from the Internal Revenue Service. Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest possible tax burden for them.

Even with just a little bit of estate planning, couples can reduce much or even all of their federal and state estate taxes and state inheritance taxes, which can get very pricey. There are also ways to reduce the income tax beneficiaries might have to pay. But without a plan, the amount that your heirs will owe Uncle Sam could be quite a lot.

4. An Estate Plan Can Help Eliminates Family Battles

We’ve all heard stories about family members fighting over their inheritance. One sibling believing they deserve more than another, another wanting to be in charge of the finances even though they aren’t the best choice. These squabbles can get ugly fast and end up in court, with family members pitted against each other.

By clearly designating who controls your finances and assets if you become mentally incapacitated or after you die, you can go a long way towards preventing family strife and ensuring that your assets are handled in the way that you intend them to be.

A good estate plan can also include individualized plans to make arrangements for a child with health problems or set up a trust for one who might be better off not inheriting a lump sum. It can also help you give more to the child who did most of the work of caring for you in your later years or less to the one whose long education you funded while paying far less for their siblings.

The need for a well-crafted estate plan becomes even more imperative if you've have recently been divorced, have had more than one spouse or have children from more than one family. If you want your assets and your loved ones protected when you can no longer do so, you need to have an estate plan. Without one, your heirs could face huge tax burdens, courts could designate how your assets are divided and even who gets to raise your children.