Many people neglect estate planning because they think it’s only for the ultrarich. There’s a widely held misconception that estate planning relates only to estate taxes, which really only affect the wealthiest among us.
However, don’t make the mistake of confusing estate planning with estate tax planning.
It may help to think of estate planning as legacy planning. An estate plan is really about building and protecting your legacy for your loved ones after you’re gone, regardless of estate size.
Legacy planning is an important process for anyone who wants to ensure the wealth they leave behind will help take care of their family or otherwise be put to good use. You don’t have to be ultrawealthy to leave a significant and meaningful legacy.
Below are a few important objectives to keep in mind when creating your legacy plan:
Provide financially for your loved ones.
The gift of financial stability is a powerful legacy. One of the main priorities of estate planning is to provide for your family after you’re gone. The essence of your legacy plan will be deciding how best to provide that stability.
The first step is to identify your intended heirs. Perhaps they’ll include your spouse, children, grandchildren or other loved ones. Next, you’ll need to decide who gets which assets. Then think about how those assets should be distributed and the tools you might use to do so.
You might consider setting up a trust, which can allow you to control the distribution of your assets with greater specificity and to minimize probate. You may also want to consider using life insurance or other financial tools to maximize the amount of assets you leave behind.
Once you have a plan for how you want to provide for your loved ones, it’s time to make sure that vision becomes a reality.
Protect your estate from financial threats.
Minimizing the threat of financial risks is another crucial objective of any estate plan. Even if you’re not wealthy enough for estate taxes to be a concern, other factors may have the potential to drain your estate.
One of the risks you can help avoid is probate, which can tie up the distribution of your assets and generate major administrative expenses. You may also want to consider the potential for debt created by the significant cost of end-of-life medical treatment and long-term care. In such circumstances, your family will be forced to pay those bills out of your estate. However, you can acquire long-term care insurance coverage to help prevent this risk.
Another risk can be the taxes on a 401(k) or IRA that your beneficiaries will have to pay, which could potentially create issues for them. Make sure they understand the different options to spread out the tax bill over the course of time.
Prepare for the possibility of incapacitation.
Unfortunately, we don’t really get to choose how we go, and it’s not uncommon for a person to go through a period of incapacitation leading up to death. If at some point you become unable to make or communicate decisions, your family may be required to make financial and medical decisions on your behalf. Leaving end-of-life instructions of the legally binding variety will ensure they’ll make the decisions you’d want for yourself.
As part of your legacy plan, you can create documents such as a living trust, power of attorney or living will to minimize the financial impact of incapacitation. A financial professional can help you find the right tools.
For more information about planning your estate, contact Sprouse Financial Group today. One of our financial professionals can help you create a plan that meets your goals to ensure your legacy. Let’s connect soon.
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