Estate planning is not only about directing the distribution of your assets when you pass away. Effective planning helps you manage each stage of your life, depending on your specific needs.
Young parents need to protect and provide for their minor children. Older couples need to plan for their financial and healthcare quality of life. Following the death of a spouse, the survivor needs to address important legal issues. Retired couples want to protect their assets even in the face of long-term care costs.
The process of estate planning inevitably raises some difficult emotional and personal issues. Your loved ones will be affected by the plans you make now. If you fail to make any plans, your spouse or family will be left to handle those issues without guidance. For many people, the most difficult step in the estate planning process is deciding to do it.
Estate planning comprises three major areas: planning for incapacity, directing your wealth, and preserving your assets.
The first component to estate planning is often overlooked. It is very likely that, before you die, something will happen to you that will render you unable to assist in your financial or medical decisions. You should have in place contingent documents – financial power of attorney, health care power of attorney, and living will – that nominate somebody else to help you make decisions.
The second step in estate planning is to direct your wealth. Your will or trust will designate your beneficiaries. To whom you leave your money and property is obviously a very personal decision. Most people naturally think of planning for spouses, children, and relatives first. But you also have to take into account the possibility that your spouse may be in poor mental or physical health, or that your children may be minors. Consider strategies that can help you plan for those contingencies.
The third part of estate planning works to minimize taxes and preserve your assets. Careful estate planning minimizes inheritance tax and preserves the recipient’s basis for calculating capital gains taxes. Long term care costs can be devastating to a couples’ savings. Both you and your spouse should establish estate plans that will maximize asset transfers to your heirs and minimize estate taxation.
You are never too young to think about estate planning. It is vital for every person to be responsible enough to create a plan for themselves and their family.