Estate planning is imperative in not only determining your net worth and protecting your wealth; it is crucial in protecting both your own and your family’s future. There are many examples of individuals who have neglected to complete an estate plan, and as a result, they have left a huge financial and emotional burden on themselves and their family members.
Estate planning is not a subject that everybody likes to broach and in recent years it has been acknowledged that fewer and fewer people are taking estate planning seriously. However with the rise in complex estate and inheritance laws and regulations, it is becoming an increasingly prevalent concern amongst financial advisors across the globe that this is an issue that must be acknowledged at some point or other during a person’s lifetime. Regardless of one’s net worth, it is essential to have an estate plan in place, no matter how basic that plan may be. Ignoring the issue of estate planning can result in outstanding and unnecessary expenses, as well as a great deal of stress on one’s family.
Upon the death of an individual their estate may become subjected to probate, which will be greatly facilitated if the person who has died has carried out estate planning. Probate involves legally administering one’s estate in accordance with the instructions of the deceased. If estate planning has failed to take place, whether that be by administering a will, a trust, or both, probate can become an extensive, complicated and costly procedure, whereby even the future of one’s children could be at risk. However if the individual has established a trust that dictates what will happen to their assets, probate becomes futile and will not be carried out.
An estate plan has several elements, including a will and an assignment of power of attorney, which enables you to transfer control of your financial life from yourself to someone that you trust, if circumstances arise. In some instances a trust is also created, depending on the preferences of the individual, and the establishment of a legal trust may be a positive long-term investment. Trusts are recognized across the globe as an estate planning tool that require a settlor, trustee and beneficiaries in order to become a legal entity. The settlor transfers ownership of the estate into the trust, whilst a trustee is appointed to administer the trust in compliance with the settlor’s wishes.
‘Estate’ is not a straightforward term and it refers to a long list of tangible and intangible assets, including investments, real estate, retirement savings and insurance policies, amongst others. An estate plan should therefore state in detail exactly who will inherit which assets and how they will be distributed. This will leave little room for conflict and confrontation amongst family members and of course, no room for creditor involvement.
When establishing an estate plan, you will have the power to protect your family’s financial future, to minimize emotional and financial burdens on your heirs, and even to ascertain who assists you with your medical and financial requirements when presented with a medical emergency or other incapacity. In addition, a plan will ensure that your assets will not be subjected to your state’s intestacy laws, which are implemented upon the inability to produce a will upon one’s death. Estate planning also allows for full control over the future use and disposition of estate assets.
A report carried out in 2007 found that roughly 58-64% of the American population had not prepared any form of estate planning, with many ignoring it because they felt their estate was worth too little. Although the idea of estate planning can seem longwinded and time-consuming, it should only be regarded as having significant and consequential importance. Without it, complex laws will result in a failure to guarantee the safety of your estate from creditors. Ultimately, they will be distributed by your state or country’s property distribution laws, and your family will have limited say in who will inherit your property. When Jimi Hendrix died in 1970 at the age of 28, his estate remained in court for over 34 years as he failed to produce a will before his death. An estimated US$80 million of his estate went to someone who Hendrix had never known, resulting in the exclusion of a number of his close relatives.
In the absence of a will upon death, the courts could determine where one’s assets will go and even who will care for one’s children. Also known as dying ‘intestate’, this can be an exceptionally expensive procedure and leaves relatives with no say over who gets your assets. The situation with children creates further complications; typically there is no easy method for determining who takes over when the parents of young children die. In the absence of estate planning, the named guardian of the deceased’s children could be decided in a lengthy court case, where they could eventually end up in foster care, creating further distress for the children.
A US-based survey discovered that a huge 74.4% of parents with children below 18 years of age had no will or estate documents. Evidently, failure to produce an estate plan can have lasting, detrimental effects on people’s lives.
As much of the American population remains naive towards estate planning, it is evident that their estate is losing out on a number of tax saving benefits. Although the advantages differ from one country to another, without producing a will or a trust, many estates will be vulnerable to state inheritance and estate taxes. Estate planning also allows for the reduction of estate and gift taxes, as well as the distribution of assets to heirs without the cost, delay and publicity of probate court, which administers wills. Furthermore, some offer heightened protection of your assets from creditors and lawsuits.
Nevertheless it can be noted that simply having an estate plan established is not enough to ensure the future of one’s wealth. Many reports suggest that a regular review of an estate plan is indispensible in avoiding pitfalls, and ensuring that it is completely comprehensive. Tax law changes can render a plan obsolete or even harmful to heirs, thus it is crucial that individuals frequently work with their estate planners to be certain that they remain updated of any changes to the law.
In the words of many, ‘ignore estate planning at your own peril’. Whether you choose to hire an estate planning lawyer or use online legal services, it is evident that estate planning is an essential tool for asset protection. Without some form of protection, the future could be bleak for your assets, and although it is not easy to decide how to transfer those assets, who should raise your children or who will make medical decisions for us if we cannot, it is evidently of vital importance.
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Category: Asset Protection