Retirement planning and estate planning are similar in scope. Both of the financial plans involve saving for the future. While retirement planning assures an affordable future in your later years, estate planning secures your legacy after you have passed on.
It isn't easy to think about what might happen after you die. However, with the right tools and procedures in place, you will be able to protect your assets and personal property and establish beneficiaries.
What is estate planning?
An estate plan is a collection of documents that protects your assets and explains how you want them dispersed after you pass away. The documents are designed with your specific wishes in mind. An estate plan lists the exact persons and entities that will act as your beneficiaries. Estate planning documents don’t just apply when you die either. They also indicate who will guard your assets if you aren't able to for an extended period of time.
Why should you consider estate planning?
Estate planning is designed to protect assets, accounts, and beneficiaries. If you die without a will, your beneficiaries will be at the mercy of the courts. Family feuding may ensue as the courts try to decide who inherits your assets or who becomes your children's guardian in the event of an untimely death. Letting the courts decide how to divide up your assets isn't usually an ideal outcome.
What does estate planning involve and protect?
An estate plan protects your assets. The assets can include financial accounts, physical assets like homes or land, and other valuables like jewelry, art, or collectibles. A well-made estate plan will also preserve the value of these assets, minimize the wait times for disbursing the assets, and reduce taxes on some of what you leave behind for your family.
The first step in the estate planning process is to create a will. The document will list the assets that you want to pass on, how you want to pass them on, and to whom. Your will is a signed, notarized, and binding legal document.
Usually, estate plans contain a durable power of attorney form and a healthcare proxy form. These two legal documents ensure that your plan is even more secure. A durable power of attorney form appoints a trusted relative or friend to manage your legal and financial affairs in the event that you become incapable of doing so. The healthcare proxy form does essentially the same thing and lists who can make healthcare decisions for you.
When should you start estate planning?
You should start estate planning as soon as you have accrued assets of any kind. If you get married, buy a house, start a 401(k), or have children, you should probably think about estate planning.
First, seek out an estate planning attorney. After that, you may need to sit down and calculate your net worth by making a list of all your financial assets, personal property, and document liabilities. Determine your beneficiaries or update them if circumstances have changed. Remember to revisit your estate plan frequently because situations can change with your health and finances.
How do life insurance and annuities help with estate planning?
Life insurance and annuities play a role in estate planning as well. Life insurance can provide a source of income for surviving family members. Annuities usually have a named beneficiary attached. Life insurance and annuities can help avoid the probate process and provide income directly to beneficiaries without too much of a delay.