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Updated January 12, 2021
The sudden passing of musical icon Prince and the subsequent revelation of no will or trust in place to manage his assets highlighted the issue of estate planning for many people who may not usually think about it.
Have an Estate Plan
While it is a delicate matter, estate planning is a major step for everyone to take eventually in their lives. Unfortunately, fact and myth on this subject often are blurred. We have taken the time to separate estate planning facts and fiction, and discuss why such planning should be a part of your future.
Fact – You Own Assets: No matter how small or substantial your personal holdings are, the fact remains that they are yours. Whether you own a home, have investment accounts (either a 401(k) or IRA), or own a business, these are all legally considered assets. When you eventually pass on, all those assets will need to be divided up and distributed accordingly.
It is better that you begin considering that now and taking the time to choose what goes to whom. More importantly, though, the tax implications need to be considered as well. Working with an experienced estate planner can help you formulate a plan that will make sure your loved ones are taken care of accordingly, while also reducing the inevitable tax burden they will face after you pass.
Fiction – Only Rich People Do Estate Planning: This common misperception is likely due to the focus on the estate tax itself; most people though will not need to worry about how to distribute millions of dollars in holdings to their heirs. This misconception makes sense though as many estate planners do work with people with substantial holdings, so their focus may naturally draw to that demographic.
However, getting back to the first point, even if you are not a multimillionaire, you could still become medically incapacitated unexpectedly. In such a case, isn’t it better to have a say in how you are taken care of and how to make sure your heirs receive your assets as wished? This is why estate planning is useful for everyone, not only the wealthy. Everyone sooner or later will need to face these decisions; the choice is whether or not to prepare for them properly.
Fact – Your Plan Can Always Be Revised: In life, things change, and there’s no reason your estate planning should not reflect those changes. A will or living trust you may have had drafted five years ago may no longer be applicable; people you wanted included may no longer be a part of your life, or perhaps you have acquired new assets, and now they have to be accounted.
The good news is that you can revisit and revise your documentation to make sure all your beneficiaries are up to date, and cover all assets. Moreover, changes in state and federal laws could affect the way your will or trust is structured as well. Keeping everything is in compliance while keeping your heirs’ tax burden low is another important reason always to review and revise your estate strategy over time.
Fiction – Too Young To Plan Ahead: The fact is no one is guaranteed a long life and unfortunately, lives can pass far sooner than expected. The most famous example of that as of late again is Prince, a musician worth hundreds of millions of dollars that virtually no one assumed would pass away so suddenly.
However, in the aftermath, the world learned that he did not plan for his eventual death with any formal will or living trust. As a result, his estate and assets could end up in court with any number of claimants jockeying for position. Again, this is not to say that anything is going to happen to you today, tomorrow, next month or next year; however, unless:
Fact – Leave Clear Plans for Your Family: Once you have passed on, your assets will be divided up whether you agree with it or not. The question that remains is will it be done by family members and heirs with your best wishes at heart, or will it instead be done by a probate court? Moreover, if a probate court does it, they will decide what goes where and collect fees on top of that.
Moreover, the larger your holdings, the more complex probate proceedings could become. For example, if you are a real estate investor with property holdings in multiple states, if you pass on early without a plan in place then each state’s probate court could lay claim to every property in its jurisdiction thereby complicating matters for final settlement incredibly. Instead, empower your chosen beneficiaries to divide everything according to your wishes and move on with their lives.
The fact is no one wants to face estate planning because in doing so, you face mortality itself. No one intends to envision the end of their lives but by avoiding it, you avoid ensuring everything you have worked for your entire life is taken care of properly. The time required to work with an experienced estate planner to assess your situation, specify your beneficiaries, and create a plan that places all your affairs in order is minimal compared to the alternative. Anderson has experience in estate planning and understands how to navigate the process with clients effectively and efficiently.
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