Estate planning is one of the most grim financial topics. However, it is also one of the most important components of financial preparedness. Never avoid estate planning because it is a dismal thought. Having a solid estate plan in place is the only way to make sure assets are distributed as preferred and funeral plans are covered. If a person dies and does not have an estate plan, the surviving spouse or family members have to pay for funeral expenses and a wide variety of other expenses related to the person’s death.
Understanding Estate Plans
Every estate plan should have a life insurance policy, a will and a power of attorney form. Life insurance provides a death benefit to cover funeral costs and some living expenses for a named beneficiary. Wills are necessary for distributing assets, and a power of attorney gives another person the power to act on behalf of the deceased. A durable power of attorney form gives another person the capability to make decisions regarding medical care at the end of life for the person who signs the form. If the person dies, the durable power of attorney also has the power to act on behalf of the deceased for financial reasons. Medical power of attorney forms are used for designating power to make only medical decisions. If a person dies without a power of attorney named, the next of kin will be responsible for making decisions. Trusts are useful estate planning tools as well. They are instruments that distribute money in increments to designated heirs as specified by the creator of the trust.
10 Reasons To Make An Estate Plan
Most people think estate planning is something to think about in the future or after they retire. Anyone can die while they are still young, and tragic deaths of young people often leave their spouses and children struggling for money. These are the top 10 reasons to have an estate plan.
1. Provide for a child with special needs. For those who have children receiving Medicaid or SSI, additional money may be needed. A trust provides more money for medical expenses that may not otherwise be covered.
2. Pick the person of choice as power of attorney. It is always better to choose a person to appoint as power of attorney. A person’s next of kin may be irresponsible and not as fit as another preferred individual to handle medical or financial decisions.
3. Protect younger children. People who die without an estate plan often leave their children at the mercy of the court. If there is no spouse living, the court usually decides who will care for the children.
4. Leave money to ensure financial security of family members. Life insurance policies are useful for leaving money to heirs. Larger amounts provide enough for living expenses, child care costs or even college tuition.
5. Choose how assets will be distributed. When a person dies without a will, state laws dictate how assets will be distributed. Relatives often come into the home after the person dies and grab what they want or fight with one another over belongings. Having an estate plan gives the creator the opportunity to specify who should receive specific items.
6. Provide for all children. For those who have children from different partners, an estate plan gives the freedom to name specific children for inheriting money or assets.
7. Keep important assets in the family. Many people worry about assets or family heirlooms falling into the wrong hands. If an estate plan is in place, responsible heirs can be named.
8. Stay out of probate court. Assets of people who die without estate plans are subject to probate proceedings. These delay assets getting to survivors, and probate proceedings come with many fees.
9. Name retirement beneficiaries. If an estate plan is not in place, IRA heirs will face tax penalties.
10. Keep a business safe. People who own a business can use an estate plan to specify who will take over the business. Family members often lose control of businesses without estate plans.