#TBT: The 411 on Estate Planning
We often don't think to heavily on estate planning items until it's far too late. This is why they are one of the first items addressed by financial planners (CFPs). Usually, people hear the word "estate" and think it has something to do with "a lot of wealth" or something that only rich people have. In reality the technical definition of an "estate" is the net worth of a person at any point in time alive or dead. It is the sum of a person's assets – legal rights, interests and entitlements to property of any kind – less all liabilities at that time.
Why is estate planning so important? Well, it isn't too beneficial for you since you'll be dead. But it helps to ensure that not only are your loved ones taken care of, it can help prevent any massive fights or meltdowns between those family and friends you leave behind. Therefore, the most obvious piece of estate planning is the creation of a last will and testament.
LESSON #1: An Intro to 'The Will'
There are many goals that can be accomplished through the creation of a will, but here are some of the more common ones:
Avoiding confusion when it comes to your final wishes.
Ensuring that your children have the legal guardian of your choice.
Protecting loved ones by ensuring that they receive your assets.
Helping to reduce or avoid conflict among family members.
Minimizing taxes and legal expenses associated with your estate.
Wealth preservation for your intended beneficiaries.
Flexibility for you before you die.
We don't want to think about it, but if an individual dies without an estate plan or a valid will, they are considered to have died "intestate." When this happens, the state where you live will have an attorney decide who gets your assets and who pays your debts according to the state's inheritance laws. While this obviously doesn't effect you, some of the people you love may end up getting left out of the distribution. Even worse, if there isn't anyone to inherit your assets, then the government will take your remaining assets.
These days, many people are in non-traditional relationships: civil unions, living with a sibling, married or not to a same-sex partner, cohabitation without being married etc. More often than not, these non-traditional relationships involve children in some capacity. If you have children from a previous marriage, your estate planning is even more important, as your current spouse may not be inclined to share your estate with them unless that spouse is required to do as based on your first will. Seriously, the last think you want to do is disinherit someone you love because of poor estate planning on your part.
This will be part of a series to discuss estate planning, but I want to at least introduce you to the concept.
Who Needs to Do Estate Planning?
Maybe you don't need to do anything at all, but that's doubtful. As a rule of thumb, anyone who owns real or personal property should do estate planning. So should all of the following people:
Anyone who owns property alone, as tenants in common (TIC), or as community property.
Anyone owning assets in multiple states.
Anyone who has dependents.
Anyone who owns a small business.
Anyone who may become incapacitated prior to death.
Anyone who wants to make a transfer of wealth.
Anyone who owns assets that may be subject to tax and want to reduce the taxes involved in transferring these assets.
(This post was originally published on GradMoney on July 7, 2017)