According to the Center on Budget and Policy Priorities, only the wealthiest one out of every 400 estates owed an estate tax in 2009. For those who may be subject to estate tax, a properly-drafted estate plan can help reduce or eliminate estate taxes. It can also help to minimize capital gains and income taxes. But estate planning is about more than reducing taxes – it’s about planning for life.
When you focus on life planning, you can use estate planning tools to your benefit today, and your heirs’ benefit in the future. Proper estate planning can help you:
- Organize your assets to minimize the impact of disability
- Avoid probate
- Minimize income taxation
- Protect your assets from creditors
- Ensure your children’s futures
- Instill your values in your descendants
Proper planning also comes with the emotional benefit of knowing that your affairs are in order and that there will be an orderly transition for you, your spouse or partner, and your loved ones at your death.
One of the biggest advantages to creating a formal estate plan is that it can be customized to virtually any circumstance or desire that you have. No matter how simple or complex your family dynamics are and no matter the size of your estate, you can arrange for the disbursement of your assets exactly according to your wishes.
Another consideration is how your family and loved ones will deal with something such as an incapacity. Legal estate planning tools such as a Health Care Durable Power of Attorney or a General Durable Power of Attorney can ensure that someone you trust can make decisions on your behalf if you become disabled. This life-planning tool also ensures legal and ethical order for your family and loved ones, something that is welcome during a health crisis.
One of the most common and flexible estate planning tools is the Revocable Trust. This tool can keep your affairs private after your death by avoiding the need for Probate. It can also address matters such as an incapacity and help you reinforce the values that you’ve instilled in your loved ones by using Trust income to encourage or discourage heirs’ behavior.
Clearly, a properly drafted estate plan is more of a life plan than a tax-savings tool, and there are many more planning options that we have not mentioned here. It’s important to consult with an estate planning attorney to discuss your particular circumstances and to draft a sound estate plan.