Are you one of the 68% of Americans who don’t yet have a will, according to a 2024 Caring.com survey? You might think you need a certain amount of wealth to justify creating an estate plan. Or that working with a financial advisor or estate planning attorney sounds both costly and time-consuming. But it doesn’t have to be — and there are plenty of reasons to do it now instead of putting it off for later. We’ll explain some of the biggest estate planning benefits you might not know about below.
What Is an Estate Plan?
An estate plan is a collection of legal documents that explain how you want certain things handled on your behalf. So, if you become unable to communicate those desires yourself, your family has a clear set of instructions to follow. Estate plans usually include specific documents for making key decisions on your behalf, such as:
- Who you trust to become the legal guardian of your minor children if you’re unable to raise them
- Your medical care preferences if you become too sick or incapacitated to voice them yourself
- How you want your property and assets distributed to your heirs in the event of your death
- Funeral service and burial or cremation preferences
- Other financial matters, like how you wish to provide for the people, organizations, or causes you care about once you’re gone
10 Estate Planning Benefits You Might Not Know About
- Your estate planning team can include both trusted family members and licensed professionals, so it’s not all up to just one person.
Maybe you’re uncomfortable with the idea of trusting a total stranger with handling your estate plan. But the truth is, the more complex your finances are, the more people you may wish to get involved. This may include:
- A financial advisor to provide guidance on financial decisions to ensure they fit both your future goals and intentions.
- An estate planning attorney to create necessary legal documents, like trusts, wills, and medical directives.
- A tax professional or certified public accountant to help create a wealth transfer strategy that minimizes any tax burden on your loved ones.
- One or more trusted family members you may choose for important roles like executor, healthcare proxy, legal guardian, heir, designated beneficiary, power of attorney, or trustee.
- An insurance professional to provide analysis on your life or long-term care policy needs, both now and in the future.
- A financial advisor can also help create a succession plan for your business to include with your estate planning documents.
Not everyone starts their own business, but for those who do, this can be a huge estate planning benefit. An April 2024 survey found that more than half of U.S. business owners are at least 55 years old. However, 36% of those surveyed say that have no succession plan. And of those without a succession plan in place already, 32% say they’re unsure of where to even start.
An effective estate plan can help preserve continuity, avoid any financial hiccups and create a smooth transition for your business in the event of your unexpected departure.
- Estate planning benefits you while you’re still alive by protecting your finances and managing your medical decisions if you become sick or incapacitated.
A 2022 Columbia University study found that 1 in 10 adults over 65 have dementia, and 22% have some cognitive impairment. Most people assume needing a healthcare proxy to make medical decisions on their behalf is a rare occurrence. However, the reality is often far more complex and nuanced than that.
A sudden decline in health can pose many risks for someone without an existing plan already in place. Do your loved ones understand how you want them to manage your financial accounts and liabilities? Did you already give someone you trust access to your personal finance accounts, passwords, and other vital information? If not, now is the time to act.
An estate plan ensures someone you trust can step in and make necessary financial decisions on your behalf. Your executor should clearly understand how to pay down debts and manage assets according to your wishes.
- A will by itself isn’t enough to help you avoid probate, but a living trust certainly can.
You probably know that probate is stressful, expensive, and can sometimes take years to resolve. It also can greatly diminish the value of any assets you wish to pass along to your heirs. But here’s another good reason to avoid probate: It creates public records detailing the nature and value of your assets — and your debts.
Many people realize they need a will to determine exactly who gets what and how much after they’re gone. It can also help save you anywhere from 3%-7% in probate costs, depending on which assets you own. But a will alone won’t speed up distribution of assets to your loved ones. Instead, you need to create a living trust. Taking this step may be among the biggest estate planning benefits for unmarried individuals, especially if you have multiple children.
- Estate plans can help quash family drama and prevent potential fights before they begin.
If every single person was equally responsible when handling money, this benefit would not appear on our list. But it does, and I expect you all know why. One of the least understood estate planning benefits is that you can create an individualized plan for every heir. This is a major plus for people who have family members with chronic health issues, for example. Or maybe you prefer to leave a lump sum to one beneficiary while putting money into an account for another’s college tuition.
Not everyone wants to divide their assets equally amongst their loved ones, and that’s okay. Respecting your wishes in regard to the distribution of your assets is one reason why estate planning exists. Failing to craft a thoughtful estate plan while you’re still healthy could leave those decisions up to your state’s court system instead.
- You’ll minimize the tax burden on any assets you choose to pass along to the next generation.
Who among us hasn’t fantasized about a big inheritance solving all our money woes? Unfortunately, a big windfall often comes with an unexpectedly high tax bill in tow. And it doesn’t have to be a huge amount of money or expensive property to trigger a major tax liability. Thankfully, estate planning can help minimize those taxes and reduce the financial burden on your heirs.
- Reviewing your documents regularly — especially after major life events — can help you avoid costly mistakes down the road.
It’s essential to review your will and other estate planning documents regularly, like after significant life events. This can include the birth of your children, marriage, divorce, buying or selling a home, or whenever you change jobs. Every time you update your financial accounts or assets, you should also review and update your estate planning documents accordingly.
Imagine accidentally leaving one child out of your will. Or leaving everything to a former spouse. Setting an annual reminder to review important documents can protect you from such expensive (and potentially heartbreaking) mistakes.
- Documenting all your financial accounts helps ensure you don’t accidentally lose or forget about any of them.
You’re probably thinking, “I would never forget about my 401(k) or savings account.” But surprisingly, many people do. In fact, this is one reason why the National Registry of Unclaimed Retirement Benefits website exists.
How bad of a problem is it? In 2023, it amounted to $1.65 trillion in lost or forgotten assets.
An essential part of estate planning is to document every account and piece of personal property you own. We tend to change jobs every few years, and transferring retirement accounts isn’t always top of mind. But you’re likely paying fees to manage these accounts, so documenting them all makes good financial sense.
- It ensures your funeral, burial, or cremation arrangements all go according to plan.
Look, nobody likes to think about dying or what comes immediately afterward. But failing to document those wishes now means you have zero input on those decisions when the time inevitably comes. Prefer donating your body to science over internment in the family burial plot? Estate planning can help you accomplish that goal.
People often have a hard time talking about these issues with their loved ones. They’re emotional, difficult, and sensitive topics to broach with children, parents, or your siblings. Putting a document together that outlines your final wishes may be easier than discussing them with family. Don’t make your family guess or add the burden of paying for a service you never wanted while they’re grieving.
- An estate plan can protect minor children if the unthinkable happens while they’re still young.
This isn’t just about taking care of your kids financially when you’re gone. You can also designate a guardian to raise your young children if you’re unable to do so yourself. Otherwise, local courts will have to step in and decide who gets custody if anything happens to you. Maybe you aren’t comfortable having your next of kin assume those rights and responsibilities. Without a designated guardian in your estate plan, you have no final say in who will care for them.
Key Takeaways: Estate Planning Benefits
- A comprehensive estate plan should include a will, power of attorney, and living trust documents.
- It should also include instructions for how to pay your debts, manage assets, and your preferences regarding medical decisions.
- Not having an estate plan can result in your assets being distributed according to state law, not how you originally envisioned.
- A financial advisor can help you create a plan that leaves your family prepared if the unexpected happens while also reducing any potential taxes they’ll owe.
