Whether you choose to marry or not, no one can avoid the fact that you need to pay attention to the financial and legal benefits that affect your relationship. And out of all of the personal finance disciplines, this fact rings most true in estate planning. Reading through my past posts, I feel like I’ve given estate planning a bit of a short shrift, despite it being one of my favorite planning areas. So today, I’d like to introduce you to estate planning.
What is estate planning?
Simply put, estate planning involves the accumulation, conservation, and distribution of an estate. Most people think estate planning only pertains to what you do with your assets when you die. However, good estate planning focuses on efficient and practical managing of your assets during your life, preparing for decisions that need to be made in the event of death, disability, or incapacity, as well as minimizing the costs of distributing your estate when you pass away.
Everyone should estate plan
Everyone has an estate. Your estate includes everything you own: from the big things like a house or a car, to the very small things like your computer, clothing, or smart phone. It also includes intangibles like cash, stock, or your retirement account. Since you can’t take any of these things with you when you die, you need to determine what happens to them while you live, when you die and/or if you become disabled. If you don’t make these determinations through proper estate planning, the laws of the state that you live in will decide for you.
Because everyone has an estate – whether large or small – everyone should have an estate plan. It becomes even more important when you have a large estate, people depending on you (e.g, children, elderly parents, etc.), and/or special requests (e.g., giving to a charity).
Don’t get caught without one
Unfortunately, because of my line of work, I have seen the devastating effect of people dying without estate plans. Recently a client died, leaving his son to take care of two houses, a couple of cars, and over $100,000 of tax debt. Because there was no inventory of assets, a will or trust, or plan of action for liquidating of any cash assets, this estate will be tied up in probate (the legal process of dissolving an estate) for a long time. In addition, the estate will incur very high costs for doing so. The son, who is the executor of the estate, will have to deal with the headache it will become.
Everyone assumes nothing bad will happen to them, or that they can put it off until next week. Don’t wait. Start the discussion with your family today. Tomorrow I will give you practical steps to get started.