The reality is that everyone needs an estate plan. Even if you just have a bank account and a 401(k), you need to consider what happens to those assets if you die. Here are the ways in which financial planning and estate planning work together.
What is the purpose of estate planning?
During your lifetime, estate planning can help you manage your financial and personal affairs. First of all, it is a good way to examine and list your assets. What is it that you have that you could pass on to someone if you die? This can include home, monetary assets in a bank account, or your investments. After your death, an estate plan distributes your wealth to your beneficiaries.
Two things you should consider early on are the value of your estate and the objectives you have for your estate. This, and working with a professional, can help you begin the estate planning process.
Where should I start with an estate plan?
67% of American adults don’t have a will. While married individuals might assume that assets will automatically transfer to their spouse, creating a will can help avoid legal complications. A will designates an estate executor, names a guardian for children, outlines property distribution, and undergoes probate.
If you don’t have a will, you won’t get to decide what happens to your assets. What happens after you pass without a will varies by state.
We also recommend that everyone periodically review their beneficiaries. Beneficiaries supersede heirs listed in a will. This means that if you list your brother as the beneficiary of your 401(k) account and then you get married without updating that beneficiary, your brother will still inherit the 401(k). Furthermore, you should tell those beneficiaries that you have designated them and let them know about the account. In today’s day of so many scams, you don’t want your brother to receive a letter in the mail about an inherited account and not know anything about that account.
Consider financial documents like a Durable Power of Attorney.
Many people consider advance medical directives in their will and estate planning process. We want to know that if we are incapacitated, someone will be able to make medical decisions on our behalf. However, the same should hold true for financial decisions. A Durable Power of Attorney gives someone else that you name the right to handle financial and legal decisions if you are unable to do so. For instance, if you need to transition to an assisted living facility, the individual appointed as a Durable Power of Attorney could sell your home to cover the costs of the facility.
We know that many folks don’t want to think about death, but the reality is that planning before something happens makes everything easier for your loved ones. Estate planning and financial planning go hand in hand. As always, please contact us if you have any questions about your investments, retirement, or financial plans.
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