Estate planning is an essential step towards making sure that the assets of individuals are passed on as per their desires when they die. Although it sounds like something that only rich people need to do, estate planning is necessary for people of all income levels says Scott Tominaga. Having estate planning offers peace of mind by providing clarity and minimizing the likelihood of family clashes, and can also help in saving estate taxes. For novices, knowing the fundamentals of estate planning is critical to ensuring their financial heritage passes through generations, and bringing peace of mind to loved ones.
What is Estate Planning?
Estate planning refers to the procedure of making arrangements for managing and allocating one’s assets if the individual dies or becomes incapacitated. It entails executing a series of legal formalities including documentation that specifies how the assets are to be treated, and how they will be distributed or solely inherited by someone.
It will also explicitly clarify who will act as the executor on behalf of the demised individual to manage and allocate the properties, provided the heirs are not given the right to do it themselves. The aim is to make sure that an individual’s desires are executed effectively and as per their wish, without any legal issues.
Major Documents in Estate Planning
There are a number of major documents involved with estate planning, and all of them are meant for distinct functioning:
Will – A will is likely to be the most popular estate planning document. It should specify how the assets of an individual will be allocated after his/her death. It should also state the guardian’s name for minor children alongside the name of an executor who will enforce the guidelines.
Trust – A trust refers to a legal contract in which a trustee owns and controls property for the benefit of beneficiaries. A living trust is helpful to sidestep the need for probate involving the judicial process of carrying out a will and provide greater privacy than a will.
Power of Attorney – A power of attorney is, in essence, a legal document in which an individual is designated with the authority to carry out financial as well as medical decisions on behalf of a person in case of his/her inability. This is essential for managing financial activities and health care decisions for a disabled individual to perform the same by himself.
Advance Healthcare Directive –Also termed as a living will, this documentation gives guidance on medical treatment wishes in the event of incapacitation. It ensures that a person’s preferences for life-sustaining treatments and end-of-life care and support are followed.
The Need to Plan Ahead
Most individuals delay estate planning, considering it is something that can be taken care of in later life. As per Scott Tominaga, planning ahead is a prudent decision as doing so can avert complications down the road. Without a plan, assets won’t pass or be allocated as desired by the individual, and family members might have to undergo a costly and time-consuming probate process. Estate planning also enables one to make crucial decisions about their financial matters and health in advance, easing the load for loved ones during challenging times.
Estate Taxes and Other Matters
Other than simplifying the distribution of assets, estate planning is a great way to save estate taxes. Strategies like the establishment of trusts or transfers of wealth in advance reduce the taxable amount of the estate and thereby help beneficiaries too to saving considerable money.
Effective counseling from an estate planner or a financial advisor like Scott Tominaga can assist in awareness building regarding the implications of taxation in the absence of an estate plan and can equally establish a suitable plan aligning with their wishes and objectives.
