It seems like many people devote more time to planning a vacation, what car to buy or even where to eat dinner than they do deciding who will inherit their assets after they're gone. Sure, estate planning isn’t as fun to think about as booking a trip or checking out restaurant reviews. But without it, you can’t choose who gets everything that you worked so hard for.
Estate planning isn't only for the rich. Without a plan in place, there could be a long-lasting impact on your loved ones, even if you don’t have a pricey home, large IRA or valuable art to pass on. Not convinced that estate planning is necessary? Consider these four reasons why you should have an estate plan, in order to avoid potentially devastating consequences for your heirs. (Read more, here: Estate Planning: Estate Planning Basics.)
1. Prevents Wealth From Going To Unintended Beneficiaries
If estate planning was once considered something that only high net worth individuals needed, that's changed: Nowadays many middle-class families need to plan for when something happens to a family's breadwinner (or breadwinners). After all, you don’t have to be super rich to do well in the stock market or real estate, both of which produce assets that you'll want to pass on to your heirs. Even if you're only leaving a second home behind, if you don’t decide who receives the property when you pass away, you won’t have any control as to what happens to the property.
That’s because a main component of estate planning is designating heirs for your assets, whether it's a summer house or a stock portfolio. Without an estate plan, the courts will often decide who gets your assets, a process that can take years and can get ugly. After all, a court doesn’t know which sibling has been responsible and which one shouldn’t have free access to cash. Nor will the courts automatically rule that the surviving spouse gets everything. (Read more, here: 6 Estate Planning Must-Haves.)
2. Protects Families With Young Children
Nobody thinks of dying young, 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. In order to ensure that your children are taken care of, in a manner that you approve of, you'll want to name their guardians in the event when both parents die before the children turn 18. Without such a will, the courts will again step in. And this time it’s not to determine who gets a piece of real estate or artwork, it’s who will raise your children. (For more, see: Why You Should Draft A Will.)
3. Spares Heirs A Big Tax Bite
Estate planning is all about protecting your loved ones, which means in part giving them protection from the IRS. Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest tax burden for them as possible. Even with just a little bit of estate planning, couples can reduce much or even all of their federal and state estate taxes or 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. (For more, read: 4 Ways To Minimize Estate Taxes.)
4. Eliminates Family Messes When You're Gone
We’ve all heard those horror stories that when someone with money dies, the warring between family members begins. One sibling may think he or she deserves more than another, or one sibling may think that she should be in charge of the finances even though she's notorious for racking up debt. Such squabbling can get ugly and end up in court, with family members pitted against each other. It's yet another reason why an estate plan is necessary. This will enable you to choose who controls your finances and assets if you become mentally incapacitated or after you die, and it will go a long way towards quelling any family strife and ensuring that your assets are handled in the way that you intend them to be. (Read more here: What To Do When You’re Left Out Of A Will.)
The Bottom Line
Simply put: if you want your assets and your loved ones protected when you no longer can do it, you will need an estate plan. Without one, your heirs could face huge tax burdens and the courts could designate how your assets are divided, or even who gets your children.