What are the three primary goals of estate planning?
Estate planning is managing and allocating one’s assets in the event of incapacitation or death. This involves deciding how property, money, and other assets will be distributed and who will fulfill those wishes.
Estate planning typically involves creating a will, a legal document that defines the distribution of assets to beneficiaries. A will also identify a personal representative responsible for managing the estate, ensuring that debts are paid, and distributing property to beneficiaries.
Estate planning is not a one-size-fits-all approach, varying from family to family. However, the goals of estate planning remain the same. Here are the three primary goals of estate planning, along with a more detailed explanation of each:
- Protecting Assets
One of the primary goals of estate planning is to protect assets. This involves creating a plan to ensure your assets are distributed according to your wishes after death. Without proper planning, your assets may be subject to probate, which can be costly and time-consuming.
Probate is the legal process when someone dies without a will or trust. During probate, a court will oversee the distribution of the deceased person’s assets.
By creating a will or trust, you can ensure that your assets are distributed according to your wishes and avoid probate. A will is a legal document that outlines how you want your assets to be distributed at the time of your death.
It also allows you to name an executor who will manage your estate and ensure your wishes are fulfilled. A trust is a legal arrangement in which you transfer your assets to a trustee who manages them on behalf of your beneficiaries.
There are different types of trusts, including revocable and irrevocable trusts, which can protect your assets from creditors, minimize taxes, and provide for your loved ones.
- Minimizing Taxes
Another primary goal of estate planning is to minimize taxes. Estate taxes can significantly burden your loved ones after your death. Estate taxes are levied on property transfer after a person’s death. Depending on the value of your estate, your loved ones may be required to pay a significant amount in estate taxes.
By creating an estate plan, you can take steps to minimize the impact of estate taxes on your loved ones. One way to do this is by creating trust. Trusts can be used to reduce estate taxes by transferring assets to your beneficiaries outside of your estate.
Another way to minimize estate taxes is by gifting assets during your lifetime. By gifting assets to your loved ones before your death, you can reduce the value of your estate and minimize estate taxes.
- Providing for Loved Ones
The final primary goal of estate planning is to provide for your loved ones. This involves creating a plan to ensure your loved ones are cared for after your death. This can include providing for minor children, ensuring that your spouse is cared for, and providing for other loved ones.
One way to provide for minor children is by creating trust. A trust can be used to provide for your minor children’s financial needs until adulthood.
You can specify the terms of the trust, including how the funds are to be used and when they are to be distributed. This can help ensure your children are cared for after your death.
Another way to provide for loved ones is by creating a life insurance policy. Life insurance can provide financial support for your loved ones after your death. You can specify the beneficiaries of the policy and the amount of the payout.
Professionals Who Can Assist in Estate Planning
Estate planning is an essential process that requires professional assistance. With so many legal and financial considerations to consider, it is essential to seek the help of professionals who can assist in creating a comprehensive estate plan. Here are some of the professionals who can assist in estate planning:
- Estate Planning Attorney
An estate planning attorney is a legal professional who specializes in creating estate plans. They can assist with drafting a will or trust, creating a power of attorney, and establishing a healthcare directive.
An estate planning attorney can also guide estate tax planning and asset protection. They can ensure that your estate plan complies with state and federal laws and help you avoid joint estate planning mistakes.
- Certified Public Accountant (CPA)
A CPA can provide valuable assistance with estate planning by helping you understand the tax implications of your estate plan. They can help you minimize estate taxes by recommending strategies such as gifting, charitable giving, and establishing trusts. A CPA can also guide how to structure your assets to minimize tax liabilities.
- Financial Advisor
A financial advisor can assist with estate planning by helping you manage your assets and investments. They can help you create a comprehensive financial plan considering your estate planning goals.
A financial advisor can also guide retirement planning, including maximizing your retirement savings and minimizing tax liabilities.
- Insurance Agent
An insurance agent can assist with estate planning by helping you understand your life insurance needs. They can recommend the correct type of life insurance policy to meet your estate planning goals, such as providing financial support for your loved ones after death.
An insurance agent can also guide long-term care insurance, disability insurance, and other types of insurance that can help protect your assets.
- Trustee
A trustee is a person or entity who manages a trust on behalf of the beneficiaries. They can provide valuable assistance with estate planning by ensuring that your trust is administered correctly and your beneficiaries are cared for. A trustee can also help protect your assets from creditors and provide tax benefits.
- Executor
An executor is a person who is responsible for managing your estate after your death. They can ensure that your assets are distributed according to your wishes and that your estate plan is carried out correctly. An executor can also guide how to minimize estate taxes and protect your assets.