Many people have the view that estate planning is mostly for high net worth individuals who require complicated estate tax planning. However, there are many important reasons to do an estate plan other than tax planning, and these reasons apply to everyone, no matter the size of your estate. Here are three reasons to consider doing an estate plan even if estate taxes are not your primary concern:
1. Planning for Incapacity
At some point in life, whether due to age, illness, injury, or other health conditions, many of us will become unable to independently manage our own finances. If you become unable to manage your own finances, the agent you select in your estate plan can step in to make sure your bills continue to be paid and that your finances continue to be managed to provide for your financial needs. Preparing an estate plan beforehand allows you to carefully choose people you trust to manage your property if you are no longer able to do so, and having the proper estate plan documents in place will give your agents the authority to act on your behalf quickly to provide for your needs without lengthy delays and in most cases without court involvement.
Planning for incapacity also involves planning for your health care in addition to your finances. Preparing an estate plan gives you the opportunity to express your wishes relating to the treatment and care you would like to receive and allows you to choose people you trust to make important decisions relating to your health care, particularly difficult end of life decisions, if you are not able to do so yourself.
2. Nominate Guardians for Minor Children
If you have children under age 18, another important reason to do an estate plan is to nominate the legal guardians of your minor children. For many parents, it is difficult to decide who will be responsible for raising and caring for their children after they are gone. Nominating a guardian in your estate plan will give you assurance that the person you choose will be the person appointed as guardian of your children by the court.
3. Avoid Family Conflict
Dividing a bank account equally among several people is usually a matter of simple math, and there is not much reason to disagree as long as everyone gets the same amount. However, it can be difficult for family members to agree when deciding who is to receive, for example, great-great-great-great-grandmother’s gold ring or the antique rocking chair that has been in the family for generations when there is only one of the item and several people interested in owning it. Because of the high sentimental value these items sometimes have, deciding you will own it can become the source of deep family conflict. The same principle applies to larger or more valuable items, such as the family home or other valuable real estate, where dividing it among several people might not be possible or practical.
Preparing an estate plan gives you the opportunity to specifically designate how you want your property distributed. With a clear direction in your estate plan as to which family members should receive the property you specify, you can help avoid or reduce the possibility of a conflict over the distribution of your property among your family members after your death.
Depending on our circumstances and stage in life, some of the reasons discussed in this article will be more important or relevant to us than others. These issues affect us and our families on a more personal level, and at some point most of us will be affected by one or more of the issues mentioned here no matter how much property we own or the value of your assets. By preparing an estate plan before these issues arise, we can have confidence that that they will be managed effectively and efficiently.