According to a 2015 study by Rocket Lawyer, nearly two-thirds of Americans don’t have a will.1 Since a will is the most basic component of any estate plan, the study’s findings suggest that most Americans have given much thought to estate planning.
There could be many reasons for this. They may believe that estate planning is meant to minimize estate taxes, which is only a risk for the wealthiest among us. Some may believe that they don’t need an estate plan or that they’re not old enough to worry about it.
The truth is that estate planning is important for anyone who wants to pass assets to their loved ones. It might be helpful to think of estate planning as legacy planning. Regardless of the size of your estate, you will likely leave a legacy for your children, grandchildren and other loved ones. Your estate plan, or legacy plan, serves to protect your assets, heirs and even you.
What should you set as your estate planning objectives? That depends on your unique needs and goals. However, there are a few common issues that are addressed in many estate plans. Consider these objectives as you develop your own legacy plan:
Protect your family’s financial stability.
For many people, the primary estate planning objective is to provide financial stability for their loved ones. If you have dependents who rely on you for financial support, this could be a critical priority. You may want to reassess your life insurance coverage, your will, and your beneficiary designations to ensure that your dependents will have enough funds to maintain their lifestyle after your death.
Also, if some of your heirs are minor children or others who are unable to manage money, you may want to consider a trust. A trust gives you the ability to exert control over how your assets are managed and distributed after you pass away. A trust can also be helpful in minimizing the cost of probate. If you lack a will, a trust or any other important documents, your assets could be distributed or used in ways that don’t align with your wishes.
Minimize financial threats.
Your estate may not be so sizable that it faces estate taxes. However, there are plenty of other risks it could face. One potential financial threat is probate, which is the legal process of settling one’s estate. Probate can be costly and time-consuming. It often includes tasks such as filing tax returns, paying debts and liquidating assets. It can generate substantial legal and administrative fees and delay distribution to your heirs.
Fortunately, you can minimize the threat of probate through effective estate planning. Tools like trusts, insurance and accounts with beneficiary designations can be used to limit the amount of assets that pass through probate.
Another potential risk is lingering debt associated with long-term care or medical treatment near the end of your life. You may require assistance with basic living activities such as dressing, bathing and eating. Or you may require complicated treatment and care in a hospital or other facility.
Unfortunately, Medicare doesn’t cover all of these costs, and your loved ones could be left with a sizable bill to pay out of your estate. You can limit this risk by setting money aside for health care costs and by considering supplemental health care insurance or even long-term care insurance.
Manage the threat of incapacitation.
Another potential end-of-life risk is incapacitation, which is the inability to make or communicate one’s own decisions. It is often caused by things like Alzheimer’s, Parkinson’s, strokes or other health care challenges.
If you’re incapacitated, your family may be forced to make financial and medical decisions on your behalf. Those decisions may not be consistent with your wishes. In the worst-case scenario, some may take advantage of your condition to benefit themselves.
You can protect yourself and your loved ones from this risk by incorporating end-of-life instructions into your estate plan. For example, a power-of-attorney document could be used to designate a trusted individual as your financial and medical decision-maker. A living trust could be used to manage assets during your incapacitation. A living will can provide specific instructions to your health care providers.
Ready to start your estate plan? Let’s talk about it. Contact us today at Bam Advisory Group. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
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