How to Secure Your Financial Legacy with Estate Planning
🕐 Read Time 5 Minutes
When it comes to getting your financial ducks in a row, some goals that might come to mind include building an emergency fund, tackling debt, saving for your dream home, planning for your kids' future, starting a business or two, and preparing for a cozy retirement.
Defining your financial goals and mapping out a plan for every season of your life is a solid starting point, but if your plan concludes with your golden years, it might be time to revisit the drawing board. Why? Because an effective plan goes beyond just deciding how you intend to use your assets within your lifetime.
You're working hard to build wealth and lead a purposeful life where you have the freedom to make financial decisions that align with your values (no easy feat!). But with a proper plan, those decisions aren't confined to your lifetime.
How is that possible? Estate planning. It's a term you might have heard before, but if you never got to the bottom of what it is, why it's so important, and how you can use it to secure your financial legacy—now is your time to find out!
What Is Estate Planning?
Imagine your estate plan as your personal instruction manual for moments when you're unable to make decisions or are no longer around to do so.
An estate plan allows you to put your wishes in writing, designate trustworthy decision-makers to handle matters on your behalf during life's unexpected turns, and ensure a seamless transfer of your assets to preserve your financial legacy beyond your lifetime.
Protecting Your Financial Legacy with Estate Planning
Procrastination is a natural response to avoiding difficult or uncomfortable topics, but delaying estate planning introduces the risk of losing control over the fate of your assets, possible family conflicts, and potentially costly and prolonged legal issues after your passing.
Instead of contemplating potential adverse outcomes, let's pivot our focus to the positive aspects of having a comprehensive estate plan:
Asset Distribution
Inheritance planning ensures your assets—properties, financial accounts, businesses, and personal belongings—are distributed according to your wishes after your passing.
If you pass away without having the proper legal documents in place, you're essentially entrusting the destiny of your assets to your state's intestacy laws. These laws dictate how your assets are distributed among surviving family members—a major risk if the default distribution doesn't match your preferences!
Minimizing Taxes
Estate planning can be instrumental in reducing the tax burden on your estate, which generally comes into play when the total value of an individual's estate exceeds a certain threshold. The more you've accumulated, the more potential there is for a hefty tax bill (more money, literally more problems).
Strategies like trusts and gifting can be implemented to make sure that a larger portion of your wealth goes to your beneficiaries rather than taxes.
Providing for Loved Ones
Certain legal documents allow you to financially (and strategically) provide for your loved ones. Trusts (which come in all shapes and sizes) are a common mechanism for passing down assets and provide the flexibility to set up specific instructions on how and when to distribute assets.
Worried about one of the kids blowing their inheritance? You can specify that a certain amount be distributed annually or have funds released to them when they reach a certain age.
Avoiding Probate
Probate is a court-supervised procedure for settling an estate, which can be a costly process, both in time and money. This is because various entities and individuals, including creditors and any individual who believes they have a rightful claim to your estate (like a supposed long-lost cousin that no one has ever heard of), have the right to come forward to challenge the probate and make a claim.
With the proper legal documents, your assets can be distributed without going through probate, providing an extra layer of protection for your beneficiaries and ensuring a smooth and quick transition of your assets.
Now that you know a few (of the many) benefits linked to having an estate plan, let's get into some estate planning must-haves!
Estate Planning Essentials
When you hear "estate planning," your initial thoughts might gravitate toward the commonly known will and trust documents, but there's (much) more to it. Estate planning is a highly personalized process, but most plans will include the following documents:
Last Will and Testament: A will outlines how you want your assets to be distributed after your death and names an executor of your choice who will manage the distribution of your estate.
Revocable Living Trust: A living trust is a legal entity to which you can transfer ownership of your assets during your lifetime. You act as the trustee and retain control until your passing, after which your assets are distributed to your beneficiaries, bypassing probate.
Durable Power of Attorney: This document allows you to designate someone to make financial and legal decisions on your behalf if you become incapacitated.
Healthcare Power of Attorney (Healthcare Proxy): Similar to a durable power of attorney but specific to healthcare decisions, this document appoints someone to make medical decisions for you if you're unable to do so.
Living Will: A living will expresses your wishes regarding end-of-life medical treatment and life-sustaining interventions. It guides healthcare providers and your healthcare proxy in making decisions in alignment with your preferences.
Additional documents, such as guardian designations (if you have children) or other types of trusts, might be suggested for your unique circumstances.
As you can probably imagine, it's essential to work with an estate planning attorney to customize your plan and make sure it's legally sound. In other words, you might want to avoid taking the DIY route on this one!
3 Simple Ways to Get Started
With so many documents and legal terms, it can feel like a cumbersome and even daunting task to draw up a collection of all the documents you need—even with the support of a legal team.
But, this process is essential for effective inheritance planning and safeguarding your financial legacy. To avoid feeling overwhelmed by the bigger picture, focus on the immediate tasks at hand. Here are some basic steps to help you get started:
Review Employee Benefits: If you have access to benefits through an employer, check your benefits package to see if you have access to any legal benefits. Some employers offer legal assistance or discounted services for creating essential estate plan documents.
Identify Your Goals and Priorities: Before you begin your search for an estate-planning attorney, start thinking about your goals. Consider who you want to inherit your assets, who will manage your financial affairs if you're unable to, and who will make medical decisions on your behalf. Your priorities will guide the creation of your estate plan.
Consult with Professionals: Whether you leverage your legal benefits, receive a referral, or conduct your own research, start connecting with attorneys specializing in estate planning to find a suitable match. They can provide personalized guidance based on your unique circumstances and help you navigate complex legal and financial considerations.
Working with an attorney is an investment that often proves valuable and yields returns greater than the initial cost (hello, peace of mind!). Many estate planning attorneys offer comprehensive packages that cover the preparation of multiple estate planning documents at a fixed price.
Merging Financial and Estate Planning to Secure Your Financial Legacy
Understanding the importance of estate planning doesn't automatically make taking those first steps any easier. Moving from a basic understanding of estate planning to actively working with an attorney can feel like a giant leap.
If the thought of it all overwhelms you, you might consider getting financially organized as a preliminary step to estate planning. Taking inventory of your assets and thinking about your financial goals offers a gradual pathway into meaningful conversations with your estate planning attorney.
If you're looking for tailored guidance to get your finances in order, you can book a discovery call to get one step closer to securing your financial legacy. We can't wait to connect with you!