From the clothes on your back to the roof over your head, the money in your checking account and your 401(k) plan, every asset you own (and most of your liabilities, too) is part of your estate. Your earthly possessions ─ financial and otherwise ─ will be left behind after your death. To whom?
That is exactly the question an estate plan, when it’s prepared correctly, will answer.
- Chances are you won’t like your estate’s plan for your estate ─ Every state has different laws for what happens to a person’s estate if he/she has no plan in place. Generally speaking, if you don’t have an estate plan in place, the state will allocate your estate as it sees fit, which may not coincide with your desires. Even if your estate ends up disbursed as you would have wanted, the process of sorting everything out (called probate) can take many months or even years and end up eroding a substantial chunk of your estate assets. If you want to ensure that you have control over what happens to your estate, you should have an estate plan.
- To avoid disputes among family and friends ─ Mourning someone’s passing is already difficult enough, but no estate plan will likely add even more stress for your loved ones in their time of grief. When a person passes without an estate plan, it’s common for family disputes to erupt, as people argue over how money and possessions should be split. When you have an estate plan, even though people may not agree with the way you allocate your estate, you’re making clear your wishes ─ not leaving it up to them to decide.
- To take care of your loved ones ─ When you pass, you leave people behind. You may have a spouse, children, grandchildren, siblings, parents, pets. Number one, you want to ensure that your children or any other dependents (yes, including pets) will be taken care of by someone you love and trust ─ so that even though you can’t care for those dependents, they are still being loved and cared for the way you would have wanted.
- To care of yourself ─ While planning what will become of your assets after you die is a significant component of estate planning, it’s also about what happens to you. Do you want to be cremated or buried? What kind of funeral do you want to have? Do you want to donate your organs? Do you want to donate your body to science? If you pass without specifying your wishes, it’s up to your family or the state to decide what to do. Or what if you become unable to care for yourself? With an estate plan, you can ensure that you are taken care of in life and in death.
Of course, these are not the only important reasons to create an estate plan (for large estates, tax planning is a very important reason to create a plan), but these are four of the most critical. No matter what you own or how old you are, having an estate plan will protect your family, you, and your estate when you pass.