When it comes to savings tips and financial planning, many often overlook estate planning. Whereas it is a strategy that can be used to achieve a lot, including securing the future of your business and funds for your children’s education.
A misleading belief about estate planning is that only the super-wealthy needs it. That is not true; everyone needs it, except you are okay with your heirs fighting over your estate, a situation that can tear the family apart and ruin your legacy.
Estate planning is simply the preparation of documents by estate owners on how they want their estate (wealth and properties) to be handled and/or distributed in the event they become incapacitated or dead.
It is undoubtedly an emotion-laden task; however, it is one of the ways of handling reality.
Unfortunately, if you die without one, a court will have to determine how your life’s labour is being shared, and most times, the judge’s decision would never be what you want.
There are different types of estate planning, and the best for you will be determined by what you plan to achieve with it.
Types of estate planning
A will is a legal document detailing how the estate of an individual should be shared in case of death. It is prepared as instructed by the testator (owner of the estate) and executed by a Estate planning lawyers upon the demise of the testator.
A trust is a legal document that transfers the control of an estate to a trustee by a grantor (owner of the estate). The trustee is saddled with the responsibility of sharing the estate as instructed by the grantor to heirs at a designated time.
Deed of Gift
It is a documentation of an arrangement between a donor and donee to transfer ownership of an estate such as land or house as a gift without expecting any compensation.
Power of attorney
It is a statement by the donor authorizing a donee (someone else) to make decisions on behalf of the donee.
Financial benefits of estate planning
Estate planning done by an experienced lawyer offers can help safeguard your estate and also offer financial benefits.
By law, the tax due on an estate is expected to be paid by the estate itself. As of 2022, an estate worth no more than $12,060,000 is exempted from being taxed when inherited.
Therefore, preparing a will or trust can help your heirs avoid tax. Also, you can transfer some of your properties as a gift when alive to reduce the total worth of your estate and help your heirs reduce or avoid tax on their inheritance.
The gift donation strategy is best for properties you are sure would significantly appreciate in the nearest future.
Saves legal dispute expenses
Failure to prepare an estate plan will most likely result in your heirs fighting over the estate, which would eventually require a court’s intervention.
Attorney fees, court costs, and other financial costs, such as fuelling their car for a meeting with other family members, are some of the expenses they would incur.
When the issue is finally settled through probate, a significant amount that should have been part of their inheritance would have been expended. This is without forgetting the possibility of them hating each other and you for putting them through such an experience.
Funds children’s education
Trust is a great way to make plans for children. The trustee can be directed to sponsor their education from the proceeds of the estate with a specified date of transferring the control of the wealth to them.
You can also include the name of the person you trust most to be their guardian in case of an unfortunate event. This can prevent them from ending up in Child Protective Services or with a family member that may maltreat them.
Protects business interest
If you run a family business, then this is very important.
It guarantees the efficient running of the business and a smooth transition in case of an eventuality.
A power of attorney will allow you to put someone you trust at the helm of affairs if you become incapacitated.
An estate plan may also include clauses that must be satisfied before the transfer of ownership of your business in case you die.
Provides for family’s expenses
An estate plan can help ensure your family’s financial needs are fulfilled just like you would want if you were alive.
Without an estate plan, they may eventually get the properties and money you left behind, but not immediately.
This will also be after a lot of legal expenses. A lot can happen within this period, and it is possible they become financially broke, unable to pay bills and cover other living expenses.