Created: November 13, 2022
Modified: November 11, 2022

Why Estate Planning is Important

Today we will cover the topic of estate planning, and more specifically, why having an estate plan is important. I remember when I was younger and first starting out as a young family. At that time, I heard the term ‘estate planning’ quite often and it sounded complicated and like something only wealthy people would need to bother with – however, that could not be further from the truth! An estate plan allows you to communicate your values, ensures your assets are distributed according to your wishes, and can help reduce drama within families. We will touch on some of these points today in greater detail.

Who Needs an Estate Plan?

Estate planning is for anyone that has any assets, or even for those who don’t have assets but want to be certain about and have control over their future in case they can’t make decisions for themselves. Remember, estate planning means you’ve laid out your plans ahead of time–not just financially. So that if bad things happen and you find yourself unable to make financial decisions (maybe due to a disability or nursing home situation), you already know what the plan is. Think of it as control. 

Estate planning provides peace of mind and security by allowing you to maintain control over your life no matter what happens. Think of your estate plan as a rule book, created by you and for you, meaning that whoever the trustee may be, they will have to follow the rules set out in your rule book. So remember, estate planning isn’t just for rich people–it’s for everyone. And it doesn’t need to be difficult or overly complicated, either. You simply need to have a basic estate plan in place.

What are the Financial Benefits of an Estate Plan?

Even though you have to spend money to establish an estate plan, there are plenty of financial benefits that come along with it. If you go online and try to get a cheap will for $70 or even free, I heavily advise against it. You need to have the proper attorney create your estate plan so that everything is taken care of correctly. There are three primary benefits: fee and tax reduction, asset protection, and control. 

Probate Fee and Tax Reduction

Let’s talk about fee and tax reduction first. And this is what I think most people think of when they think of an estate plan. They think of how do I reduce my probate fees or avoid probate altogether and how do I reduce my taxes? 

Although a will is technically still considered an estate plan, it doesn’t come with all of the benefits that other types of estate plans offer. For example, if you only have a will, you’re not going to be able to avoid probate or any taxes associated with your estate. However, if you have a trust (which could be either revocable or irrevocable), then you may be able to reduce some fees and taxes. Most likely it’s an irrevocable trust or what some people call a living trust. And because of that, you can actually reduce the fees on the settlement of your estate plan. You also create privacy, which I think for a lot of us is very important these days. 

For example, I live in Connecticut, and I could go down to our probate court and look up whoever died without a trust, with just a will or no will at all. And I could find out exactly what they owned and where they owned it. It’s not very private. So, again, fee reduction and tax reduction, but also with an estate plan, with a proper living trust and so on, I can reduce my fees. I may be able to also reduce my taxes depending on the type of estate planning or trust I set up, but I can also create privacy and asset protection. 

Asset Protection and Long-Term Care

Let’s talk about asset protection. The biggest risks people face to their assets in retirement are liabilities like lawsuits. If you get into a car accident, somebody slips and falls on your property, or you need long term care, you can get some asset protection through a good estate plan. 

Long-Term Care is something we should all think about as we age. According to last statistics I saw, if you are a couple over 65 years old, there is a 50% chance that one of you will need to enter a nursing home at some point. The cost of being in a nursing home varies depending on location, but it can be anywhere from $10,000-$15,000 per month- which could quickly put a dent in any retirement savings. A good estate plan can protect your assets from being depleted by nursing home costs. Various legal strategies can be used to gift money or otherwise shield funds from being spent on Long-Term Care. You can also purchase Long-Term Care insurance as part of an overall estate plan. By taking these steps, you can help ensure that your hard-earned savings will last throughout retirement.

As I mentioned earlier, asset protection also includes liability insurance. Let’s use a car accident as an example. You might be a great driver, but let’s say you loan your car to a grandchild and they go out and get in a car accident. Who are they going to sue? They’re not going to sue your grandchild. They’re going to sue you because you own the car and you probably have more assets. An estate plan can protect your assets from liabilities, and an umbrella policy is a great way to do so. An umbrella policy takes over when your home and auto insurance aren’t enough, for example in the case of a $3 million lawsuit. Your homeowners and auto insurance policies are not going to cover that, but an umbrella policy will. I recommend everybody have an umbrella policy.

So, we’ve discussed how to reduce fees and taxes through the utilization of trusts, for example. And asset protection – like safeguarding ourselves from nursing homes or extra liability. Control is the third benefit, which many of our clients like the most.

Control and Manage Your Assets

I’ll start by asking a question to all of the moms out there. How many of you love your children? Probably all of you, right? Now, how many of you love the people your children married? Not so much. If you are looking for a way to protect your assets and inheritance that your children may receive from their spouses, you can do that through proper estate planning. This will allow you to have control over what happens to your assets in the event of a divorce or other situation. 

What if you have a child that spends money in a way that’s not congruent with your particular values? You can create control so they’re not able to blow money. My one son is a great kid who knows how to handle money responsibly, but he also enjoys spending it. I’m saying this half-jokingly, but you know, before the dirt is on my coffin, there’s going to be a BMW in the driveway. So if you want to avoid that, you can create control through a proper estate plan. Think of it as control from the grave.

While it may seem morbid, estate planning can provide peace of mind knowing that your wishes will be carried out according to plan. It’s also crucial to have an estate plan in place in case of incapacity due to injury or illness. Perhaps there’s a situation where there’s a stroke, some type of injury where the person does not die, or dementia, a well-crafted estate plan can provide for the management of your estate if you’re unable to make those types of decisions. 

With people living longer lives nowadays, it’s crucial to have somebody you trust to manage your finances if you were to experience a condition like dementia. This way, that person can make sure your money is being spent wisely and make sound decisions on your behalf. That’s why I recommend having a more comprehensive estate plan than just a will. For those of you that have done a good job saving money, you’ll need to have a much more detailed estate plan which will probably involve trusts, and maybe gifting, while you’re alive to make sure you’ve protected your assets. 

The Emotional Benefits of an Estate Plan

Let’s talk about the emotional benefits of having an estate plate. I talked a little bit about the emotional benefit of having control and the peace of mind that your money is not going to be spent in a way that’s inconsistent with your values, but also it can reduce family drama.

Reduce Family Drama

It’s really unfortunate, but you have probably seen situations where mom or dad die, and their heirs, typically the direct descendants of mom or dad, end up with some type of squabble or dispute. An example would be if one person wanted to inherit the beach house but couldn’t afford to keep it, and they expected their other siblings to pay for that. All sorts of things can happen, like collectibles being fought over. A good estate plan can reduce a lot of that family drama. 

Help Express Wishes on How to Divide Things

In addition, when you take into account family drama, oftentimes there is one person who is in charge of executing the estate plan, as an executor or trustee. Siblings can get upset and start fighting with each other very easily. A trust can help alleviate these issues by being explicit about the way things should be done; this way, the trustee can simply say that they are following the rules. You can reduce a lot of family drama and stress while also expressing your values through a good estate plan.

Something that I believe to be very important is that my children know what my values are when it comes to money. I want my kids and my grandkids to have a certain respect, understand the value, and learn the habits I’ve had around money because I think they can learn a lot from that. Our kids stand to learn more from our actual lives than from any books on the subject matter. We want to instill our same morals in future generations. So that’s something the estate plan can do, and of course, it reduces the burden on the family. 

Reduce the Burden on Family

With proper estate planning, you can avoid leaving your loved ones with difficult decisions during an already trying time. You can specify your wishes regarding life-prolonging medical care, and take the guesswork out of deciding what to do with property or other assets. You can also make a list of all the belongings you own outside of your estate plan. For example, I have a collection of guitars that I would like to specify where they go. The same goes for my cars – I can decide who gets what. These items may not be caught up in a formal estate plan, but this extra list enables your loved ones to avoid any confusion or disputes later on. 

It’s really important, in my opinion, that you have more than just a will. If you have assets, if you have heirs, I think you ought to have a better estate plan that probably includes some trusts, gives you some control, protects your assets, reduces your fees, and creates privacy.

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