The 2 Most Important Purposes of Estate Planning
Estate planning is a critical step in managing your financial legacy, yet it remains one of the most neglected aspects of personal finance. Only one in three Americans has a living will or estate plan. Given the financial security that a well-crafted estate plan provides, this is a matter of serious concern.
Contrary to popular belief, creating a will is not something only the wealthy or those in their golden years should do. Read on to learn how planning your legacy can benefit you and your loved ones.
Keep Your Financial Interests Safe
You have worked hard all your life to accumulate your house, savings, investments, bank accounts, life insurance policies, retirement accounts, and maybe a cherished family heirloom or two. Without an asset protection plan, all of this — essentially your life’s work — could end up in the wrong hands or get tied up in family conflicts or lawsuits after you are gone.
If you do not specify who your estate should go to, some distant relatives or even the state could claim most of your possessions. By clearly outlining your beneficiaries in a legal document, you can ensure that only those you choose receive your money.
This is especially important if you have children who are still young. An estate plan will allow you to set up a trust to manage any inheritance they receive until they are adults. This way, you are not just leaving them your wealth but also making certain that those assets will be responsibly managed in your absence.
Notably, if you die without a will (known as dying intestate), your spouse might not automatically inherit everything. In Maryland, your significant other only receives half of your intestate property, and your children receive the other half. If you want to provide for your surviving family members or distribute your belongings as per your wishes, don’t delay working with an experienced estate planning lawyer.
Reduce Estate Taxes and Avoid Probate
When you pass away, there are estate taxes, inheritance tax, legal fees, and other costs associated with transferring assets — all of which can significantly reduce what your loved ones inherit. Lowering the tax burden is one of the most important purposes of protecting assets with a legally binding wealth transfer plan. It allows more of your estate to go directly where you want, rather than to taxes and court costs.
The federal government and some states like Maryland, Washington, Connecticut, and New York impose taxes on the transfer of an estate upon death. A thoughtfully created estate plan uses tools like trusts to legally minimize this taxable amount. If you have a high-value estate, without planning, a portion exceeding the exemption limits would be taxed when your property passes to a close family member. Thankfully, you can create trusts to take full advantage of all kinds of tax benefits.
For married couples, strategies like AB trusts (a credit shelter trust or bypass trust) can maximize both spouses’ exemptions, effectively doubling the amount that can be passed on tax-free. You can also place your property and investments in an irrevocable life insurance trust (ILIT) to remove them from your taxable estate.
Moreover, think about probate. It’s a legal mechanism that ensures a deceased person’s debts are paid and their assets are distributed according to their will (or state law if there is no will). It’s a fairly lengthy and costly process, where survivors have to pay probate court fees, legal fees, and sometimes executor fees. These costs can diminish the value of the estate that is passed on to the heirs.
Establishing a trust can help you bypass the probate process. Assets held in a trust, for example, are transferred directly to the beneficiaries without going through probate. Not to mention probate is a public process, so your estate details will become part of the public record. Preparing your will or trust will keep your financial affairs private and out of the public eye.
Wish to Know What are the Two Most Important Purposes of Estate Planning? Call Us Today
Estate planning is fundamentally about control over how your hard-earned wealth is distributed and efficiency in limiting the financial impact on your heirs. If you are not sure what kind of will, trust, durable power of attorney, health care directive, life support, or financial plan you need to set up, let us help. Our knowledgeable attorneys at Parker, Pallett, Slezak & Russell, LLC pay close attention to what you want to make a thoughtful, organized transfer of their legacy. For a free consultation, call us at (410) LAW-YERS or complete this online contact form.