If you hear the phrase “estate planning” and immediately tune out, you’re not alone. An estate plan is not only for the wealthy who own an actual estate, complete with manicured lawns and a mansion. It's for everyone—because everything you own counts as your estate.
Your estate plan is made of a set of legal documents, and when drafted correctly, they collectively protect you, your loved ones, and your assets. The plan can include documents like your will, a trust fund, as well as appointing healthcare proxies and powers of attorney to provide further protection for you and your assets.
Still not convinced an estate plan is for you? These five reasons might change your mind.
1. Make your wishes known
The most important reason to have an estate plan is to ensure what you want is clear and your requests are honored if you’re alive but unable to make decisions on your own behalf, or after you pass away.
A will alone is not enough to dictate particular requests and rules that you want to set up for your heirs. If you only have a will, beneficiaries will simply receive what you bequeath to them and are free to do what they want with it. However, a trust fund established by your estate can stipulate how, when, and why funds you leave to your loved ones may (or may not) be used.
An estate plan will also cover issues like who receives guardianship and custody over your children or who makes medical decisions for you, if you're unable to do so.
2. Skip over probate
Without an estate plan, the decisions above—including who gets custody of your children—would pass through probate court (a court that handles estate matters). A probate judge could be the one who ultimately decides how your financial accounts, possessions, and anything of value will be split between interested parties, and who will receive guardianship of any minors or dependents.
Probate court is also a matter of public record, whereas wills and trust documents can remain private. And, because it is a court of law, the probate process opens the door to litigation and arguments between family and friends who may disagree on how your assets should be distributed.
You can avoid these issues with a clear will and trust as part of an estate plan.
3. Avoid unnecessary taxes
If you have assets and valuables in your name when you pass away, those belongings are your estate—and the value of your estate can be taxed at both the federal and state level.
Depending on where you live, you may want to use a trust to protect your estate from these taxes, as a higher tax bill leaves a lower amount in assets available for your heirs to receive.
Tax liability differs by state, so it's important to understand the regulations that apply where you live.
4. Protect yourself if you’re incapacitated
Estate plans don’t just help protect your assets and your family members after you’re no longer here—they can protect you while alive, too.
For example, if you’re unable to make decisions that are in your best interest, someone with power of attorney over your accounts and assets can step in to conduct business on your behalf, manage bills and other financial to-dos, and sign off on legal documents where your signature is needed.
Healthcare proxies or advanced healthcare directives are important to draft as part of your plan, too. These documents can stipulate important demands about your medical care, such as "do-not-resuscitate" orders.
5. Give loved ones clarity and yourself peace of mind
A well-organized and complete estate plan can help eliminate confusion, prevent fighting between potential beneficiaries (because there will be no ambiguity about what you may have wanted), and create organization and structure to follow when it comes to inheritances and passing on possessions.
This can help make processing everything—emotionally and logistically—easier for your friends and family if you were no longer around (or able) to clearly provide direction.
In the meantime, an estate plan can provide peace of mind to you, as well. It can be a big relief to know that your affairs are in order and what you want are both clearly articulated and protected by legal documentation. Plus, getting organized is always a good thing.
When it comes to creating the best estate plan for you, it helps to hire an estate planning attorney to draft the necessary documents. Work with someone in your state, as specific laws governing things like wills and trusts vary depending on where you live—or check with your employer to see if they can help. A workplace legal plan can provide convenient access to qualified estate-planning attorneys to help you get started.