When you hear the phrase “estate planning” do you think of millionaires and mansions? Don’t worry, most people do! But an estate plan is NOT only for the wealthy – it’s for anyone who wants to protect their family and assets.
Everything you own – real estate, bank accounts, vehicles - counts as your estate. Without a plan in place, your loved ones could face more stress after you’re gone. This set of legal documents also helps protect yourself and your wishes if you’re unable to speak for yourself.
If you’re interested in upgrading your will to an estate plan, you’ve come to the right place. In this article, you’re going to learn the difference between a will and estate planning, when you should use estate planning, the average cost of an estate plan, and much more.
What is Estate Planning?
Estate planning is when you work with an experienced attorney to plan for your death or incapacitation. During the meeting, you’ll be presented with several types of legal documents that will help you decide how you want to distribute your assets, who you want as a guardian for you, your children, your estate, and more.
The value of the estate’s assets determines whether a will, revocable trust, irrevocable trust (or asset protection trust) is the best fit. Having these documents specific to how you want your assets distributed makes it easier for others to handle your affairs when the time comes.
Why Would You Need an Estate Plan?
If you want to have control over who inherits your valuable possessions once you’ve passed away, or if you want to choose who can make decisions on your behalf, you need to make an estate plan.
Additionally, an estate plan allows you to name a guardian for your children in the event of an unforeseen death. There’s no better peace of mind knowing that your loved ones are taken care of by the people of your choice.
There are several reasons you need an estate plan, here are just a few:
Arrival of Children - Choosing a guardian and ensuring children are cared for are important matters.
Probate - Probate can cost several percent of an estate’s value to administer. As such, avoiding probate provides significant savings, along with the time and loss of privacy.
Privacy - Probate proceedings are public. This means everything you own, and who receives it, is made public if you don’t avoid probate.
Philanthropic Goals - Ensuring causes you care for are properly funded can be ensured via a proper estate plan.
Make Things Easier – Having an estate plan ensures guidelines are set for the unknown situations in life. For example, if you were to become mentally incapacitated, and estate plan already states who is in charge of your well-being, estate, and so on.
Reduce Estate Taxes – There are a variety of estate planning techniques to help make estate and/or inheritance tax bills less stressful.
Minimize Legal Battles – Having an estate plan listing your wishes minimizes the chances of family conflict and harsh legal battles.
If you want your loved ones and your assets protected when you’re gone or no longer able to control it, you need to have an estate plan in place.
How Estate Planning Works
Now that you know why you need an estate plan, how do you make one and what does it cover?
Here’s a list of how estate planning works and how to start an estate plan:
Make a Will – A will name a guardian of your choice for underage children and states who you want to inherit what assets.
Create a Living Trust – Holding your property in a living trust means less stress on your survivors. Plus, they will avoid the probate court.
State Medical Decisions – Health care directives give the person you choose the power to make medical decisions in the event that you cannot make sound decisions on your own.
Find a Financial Power of Attorney – This does not have to be an attorney. It’s the person you name to handle your all your finances if you become incapacitated or in the event of death.
File Beneficiary Forms – Filing these forms helps your beneficiary skip the probate process. You can register retirement plans, stocks, bank accounts, and more to automatically transfer to your beneficiary in the event of death.
Understand Estate Taxes – Unless your estate is worth more than $11.58 million (this is for 2021 and will rise each year), then the federal government will not impose estate tax.
Safely File Your Documents – Having an attorney safely file and organize your documents will help your survivors in their time of need. These documents could be your will, trusts, insurance policies, deeds, stocks and bonds, financial information, and more.
Benefit of Estate Planning
Establishing an estate plan and readjusting it as needed can not only help prepare for your future, but it can help your survivors in a variety of ways. Here are just a few advantages of estate planning:
- Protects beneficiaries
- Reduces tax burden on beneficiaries
- States how assets are distributed clearly
- Protects minors
- Ensure success for a business (if you’re a business owner)
- Independence to have the last say
How Much Does an Estate Plan Typically Cost?
Sadly, it costs money to die. Reports show that in 2020 the average costs for a funeral are between $7,000 and $9,000 – and that doesn’t even include the cemetery plot, marker, or floral arrangements. End of life medical costs vary for each state but can easily reach past $20,000.
Costs for an estate plan vary widely depending on the documents you need and your lawyer’s fee. There are a few factors that determine the costs:
- The types of estate plan you need
- The legal fees your lawyer has
- Who does the work on your estate plan
There are lawyers and online do-it-yourself estate planning options that will prepare a basic will or power of attorney for $100 to $200. Most lawyers work on a per hour basis and charge an average between $250 and $350 for a more in-depth estate plan.
To help minimize your estate planning costs, research firms and pick the right attorney. Know what a basic estate plan includes and what documents you need, discuss costs upfront, and then draft an agreement in writing.
Do You Need an Estate Plan?
Drafting a will and estate planning are often used interchangeably, but they’re actually very different processes.
Creating a will is a fairly simple process that dictates things like who takes care of your children, who receives your assets, and other property-related issues.
An estate plan is a more intense process that includes several types of documents to secure your assets after your death. Usually, a will is included in these documents. Estate plans provide your family and survivors with a more comprehensive understanding of how you would like things handled once you’re gone.
Individuals who choose to create an estate plan are often those who own a business, have had more than one marriage, want to contribute assets to charity, or have specific health and property wishes. Estate plans are also for those who feel their rights and wishes will be ignored if they happen to become incapacitated.
If you want your assets and your loved ones protected when you can no longer do it, consider creating an estate plan. Without one, the courts could designate how your assets are divided, who gets to raise your children, and your heirs could face stressful tax burdens.