Many people seem to devote more time to planning a vacation, choosing a car to buy, or even selecting a spot to eat dinner than they do to estate planning—deciding who will inherit their assets after they’re gone. And, quite frankly, we get it. It’s not as fun to think about as booking a trip or checking out restaurant reviews, but without estate planning, you can’t choose who gets everything that you worked so hard for.
First, let’s dispel a huge myth: Estate planning isn’t only for the rich. Without a plan in place, settling your affairs after you go could have a long-lasting—and costly—impact on your loved ones, even if you don’t have a pricey home, large IRA, or rare pieces of art to pass on. Need more convincing? Here are four reasons not to put off the estate planning process any longer:
An Estate Plan Protects Beneficiaries
The main component of estate planning is designating heirs for your assets, whether it’s a vacation house or a stock portfolio. Without an estate plan, the courts will distribute your assets according to state law. This process, known as “intestate succession,” can take years, rack up fees, and sometimes get ugly. Under intestate succession, it doesn’t matter which sibling has been responsible and which one shouldn’t have free access to cash, or whether the decedent wanted their surviving spouse (or child, sister, mother, or whomever) to get everything (or nothing).
An Estate Plan Protects Young Children
Nobody thinks of dying prematurely, but if you’re the parent of small children, you need to prepare for the unthinkable. This is where the will portion of an estate plan comes in. To help ensure that your children are cared for in an approved manner, you’ll want to include your preference for their guardians (and alternative guardians) in your will. This is especially important if both parents die before the kids turn 18. Without a will that expresses your wishes for whom to act as guardians, the courts will have a much more difficult time determining who should raise your children.
An Estate Plan Spares Heirs a Big Tax Bite
Estate planning is all about protecting your loved ones, which means in part giving them protection from paying unnecessary taxes. Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest possible tax burden for them.
An Estate Plan Eliminates Family Messes
We’ve all heard the horror stories. The deaths of famous public figures sometimes reveal such stories, but it’s the same story: Someone with money dies, and the war between family members begins. One sibling may think they deserve more than another, or one sibling may believe they should be in charge of the finances even though they're notorious for racking up debt. Such squabbling can get ugly and end up in court, with family members pitted against one another. Having a will or trust in place may not bring complete consensus, but these documents often reduce the risk of fighting when you’ve made a clear written expression of your intentions.
Unfortunately, fighting can occur even prior to losing a loved one, and this is yet another reason why estate planning is necessary. Advance directives are crucial documents not to be overlooked in the estate planning process. The names of advance directive documents can vary depending on the state you live in, but generally include a “living will,” “healthcare power of attorney,” and “durable power of attorney.” These documents enable you to choose what type of medical treatment you wish to receive (or not receive) during end-of-life care, and who is in charge of making medical decisions and controlling your finances if you become mentally incapacitated. Unfortunately, accidents and other unforeseen medical events occur, and these events may put your family at odds regarding your care and finances during an emotionally charged time. Having advance directives in place (along with your will or trust documents) will go a long way toward quelling any family strife and ensuring your wishes are followed.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice. Any views expressed herein are those of the author(s) and not necessarily those of Multnomah Group or Multnomah Group’s client.