No one plans to die, but if you go suddenly and without an estate plan in place, you leave behind a chaotic and stressful situation for your loved ones.
On June 1, Advice Chaser will host a webinar on the topic, “The Essentials of an Estate Plan for New Families.” People looking to get started on estate planning or those still on the fence about whether or not they need to won’t want to miss this one. In the meantime, let’s examine the three different tools you can pursue as parts of your estate plan:
- Life Insurance
Upon death, most matters go through probate court, the judicial system that settles wills, trusts, conservatorships, and guardianships. The court examines these estate plans if you have one, but if you don’t, they decide how to manage your estate.
Estate doesn’t necessarily mean property when it comes to probate courts. It more accurately means the sum of all your assets, not simply property. This includes your legal rights over minor children, cash holdings, furnishings, even collectibles.
Why Wills are Crucial
If you have children, a business, or property, then you should seriously consider a will. Up to two-thirds of Americans don’t have wills and probate courts end up making decisions on their behalf. You will get to designate how your earthly possessions are distributed to family members or any other beneficiaries. Perhaps you want your assets to go to charity. No one will ever know if you don’t establish a will, and the earlier you start, the better.
A will is exactly that — your will, your decision of what should happen to your family, your personal belongings, and your assets should you no longer be alive to handle them yourself. If you pass before your children reach adult age, who will raise them? Such a personal decision is one best left to you, not a judge.
Wills can be contested in probate court and are a matter of public record.
The Value of Trusts
A trust differs from a will in that it becomes active as soon as you make it, whereas a will goes into effect upon your death. While most people should have a will, not everyone will find themselves needing a trust.
Unlike wills, trusts do not designate any guardianship but they do follow strict rules on inheritance. They also are not usually challenged in court. Many people can use trusts to avoid their estate going to probate court or to avoid certain taxes. It can also protect your assets from creditors.
Trusts can divide your wealth or assets before your death. These assets are held by the trustee for a third party, the beneficiary. The trustee must ensure that the rules of the trust are followed, even if the trustor can no longer do so.
Some trusts can also protect your estate from taxes. If you give the money irrevocably during your life, you may pay gift tax now, but your heirs will not have to pay estate tax later.
A trust can provide for a beneficiary who has a disability that prevents them from managing their own funds, or for a minor. When they reach the age agreed upon in the trust, they become the owner of the trust in full.
Life Insurance Helps Your Loved Ones
Much like trusts, life insurance isn’t for everyone, but it can be really useful in the right circumstances. Life insurance can pay off any residual debts, mortgages, student loans, and cover the expensive costs of funerals.
As a general rule for life insurance, your policy’s payout should be able to cover your yearly income at minimum. This also ensures that your dependents will be taken care of, rather than placed under financial strain due to the costs of your funeral and debts. Even if you don’t have dependents, life insurance can help cover costs if your debts exceed the value of your estate.
However, if you’re single, with no dependents, and have enough financial security to pay for your funeral and other assorted fees, then you might not need a life insurance policy.
Learn More About How You Can Protect Your Estate and Your Loved Ones
If you want any say in what happens to your estate after your death, having an estate plan in place truly matters. A financial advisor can offer valuable insights on how you can plan for practicalities once you’re gone. To learn more, sign up for our webinar on June 1 at noon Eastern Time. Joe Dallo, lawyer and estate planner, will bring his years of experience to demystify this important topic.