Estate planning, the planning everyone – regardless of income or status – should conduct early and update frequently, can be downright depressing.
Although the premise of estate planning is to settle what happens to your earthly possessions after your unavoidable final chapter, the process and the outcome are so much more than squaring away your things after your death.
The uncomfortable process of disbursing your material wealth will still need to take place, with or without detailed descriptions of your wishes. It is an unavoidable step that must be taken by your descendants after you are gone.
However, discussing and planning for that inevitable ordeal while you are still physically present can ultimately make your passing less burdensome and less painful for the loved ones you leave behind.
Imagine for a moment that you have not spoken with your spouse, your children or your lawyer about what you want to happen after you die. Whether your death is unexpected or anticipated, those closest to you, wrought with emotion and grief, still have to talk about what is left behind.
Each person might feel certain they knew what should happen to your car or the home or your bank accounts; some things may even appear to have only one logical way of being handled. Yet, even if everyone agrees on how your possessions should be handled, without your presence or documented wishes, your estate will be subject to probate -- that emotionally draining, time consuming, expensive legal intervention that oversees the distribution of your property.
Below are a few frequently asked questions regarding estate planning that can help ease anxieties toward this phenomenal tool.
1. Isn’t Estate Planning Just For Rich People?
Absolutely not. Estate planning can be beneficial if you are a multi-millionaire or if you make five digits, if you are debt-free or if you are eyeball deep in debt, if your portfolio is bursting at the seams or if your portfolio is essentially nonexistent.
As Middleburg Bank’s Gary Shook stated, “Contrary to popular belief, estate planning isn’t just for the wealthy. Estate planning can help your family during a difficult time.”
“A good estate plan will make things easier for loved ones by providing support for your spouse, preserving assets for later generations, and protecting your family’s privacy. A bad estate plan – or no estate plan – can result in increased taxes and costs. It can also dispose of your assets to people or in ways you wouldn’t have chosen.”
2. Why Isn’t Just Scribbling Out My Wishes Good Enough?
While any documentation is better than no documentation, one of the benefits of proper estate planning is that your family can avoid probate.
Unfortunately, simply writing out what you want on loose leaf is not always considered crafting a legal document. Even if the document is endorsed with the signatures of two witnesses, the document may not be considered legally valid.
While it may help to give direction to your family or the probate court, there is the potential that any holographic will may not hold up in court and have no legal bearing on what will ultimately happen to your assets.
3. What’s The Difference Between A Will And A Trust?
In the most basic sense, a will is a document that details who you want to get what. It can either be drafted by you (as in the case of holographic wills, which could lead to some complications at probate), or drafted by a lawyer and notarized.
Even if you have a legalized will, your heirs will still need to go through the probate process. However, with a legalized will, the process is less invasive and involves simply going through a routine process proving the will’s validity and the subsequent identification/inventory of property, paying debts and taxes and distributing the remaining assets.
A trust, on the other hand, functions while you are alive and upon your death. Working in tandem with a will, trusts accumulate your assets. Once assets are placed into the trust in your lifetime or poured into the trust from your will, the assets are protected and not subject to probate.
4. Why Is Avoiding Probate So Desirable?
Besides the emotionally draining aspect of going through probate, it also comes with a hefty price tag, paid for by your estate. So, after all of the time and emotions spent in probate, the legal bills chisel away at your estate, diminishing what would otherwise go to your heirs.
Consider the consequences of leaving your family with little or no guidance for after your death. Estate planning comes with its own price, but when weighed against the costs of not having detailed, legal documents, it is well worth the difficult discussions and uncomfortable ordeal.
Understand that the more familiarity you have with the post-mortem legal process and the more transparent you are about what happens once you die, the more prepared and secure you leave your family. Death is not an isolated incident. Likewise, while emotionally your family’s world might stop spinning, their own lives will continue. Do what you can to protect them, even after you are physically gone.
Read more about the mental preparation involved in estate planning here.
This article was written as a collaborative project between NASDAQ Contributor and Benzinga Managing Editor Joe Young and Benzinga Personal Finance Writer Rebecca Sheppard.
Plus:
After Your Funeral, Your Financial Assets Could Haunt: Estate Planning Basics
Legacy And Estate Planning With A Roth IRA
Leaving Inheritances Your Way: Why Grandkids Make Things Tricky
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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