Retirement and estate planning are two crucial aspects of a retiree’s life. Both are equally important.
While retirement planning helps secure your future, estate planning helps safeguard the future of your loved ones in the case of unforeseen circumstances. Various studies in the context of retirement and estate planning reveal that not many Americans proactively get into estate plans.
About 33% of residents in the US have an estate plan. To make matters a bit worse, only 20% of these Americans do not have updated plans. Of the total, men are better prepared for contingencies and emergencies – only 28% of women against 41% of men have an estate plan.
Most respondents in the survey mentioned that their reason for not having an estate plan is that they do not have an estate that warrants planning.
That’s where most people go wrong. The truth is that all of us have an estate. Therefore, without further ado, let’s just get started with understanding the basics of estate planning.
What Actually is Estate Planning?
The estate is typically anything you own, from your savings account to your car, jewelry, personal possessions, real estate, investments, and more.
Most of us have an estate, irrespective of how big or small the estate is. In your 20s, you can work harder to own some more assets.
Estate Planning revolves around making a plan that states who will receive what part of your assets or estate after your passing.
The plan also includes details about running your estate affairs when you cannot handle them anymore.
The estate planning process daunts most people, and unlike what the majority of people assume, it is not just about your finances.
However, it is equally important that you pay attention to your personal finances. It is indeed complicated since there are multiple aspects to estate planning, and, therefore, overwhelming too.
While most people should have their estate planned, retirement and estate planning are closely connected.
Once you retire, it becomes even more crucial to ensure that you have things documented on how you plan to leave your assets behind.
The main components of estate planning include:
- Clear instructions on how the estate should be divided amongst others are included in a will.
- Name guardians for your kids, especially if they are minors.
- Provide details about transferring your business on retirement or death.
- Ensure that the taxes and legal fees are minimal.
Estate planning should be done continually, as you may need to tweak it from time to time. Even though the general conception is that retirement and estate planning go hand-in-hand, anyone can do it at whatever age.
Why do you Need an Estate Plan? Reasons to Know!
1. Peace of Mind
Once your assets have been planned, you can be at peace, and so will your loved ones. It is the best way to reduce ambiguity about your estate.
You can be stress-free, knowing that there won’t be any unnecessary confusion and hostility related to the division of your assets in your absence.
2. Your State Might Impose a Plan that you may not Like
Suppose a person dies without an estate plan. All the assets of the person get divided as per the intestacy laws of the state.
The entire proceedings will be supervised legally. If you are disabled and can no longer run your business, the court will appoint someone it deems fit to sign on your behalf.
The court will control all your assets. You may or may not like and agree with the arrangements, but the state will take matters into its own hands. Hence, investing some time and money into estate planning is the best way.
3. Estate Planning Helps Organize Your Assets
Most of your family members will not know where to locate your insurance policies, titles, financial records, or other official documents during an emergency.
This is crucial for retirement and estate planning. A plan helps everyone concerned to get to your documents fast and correctly.
4. Estate Planning Protects Kids & Beneficiaries
When there are minor kids around, you need to be prepared for any eventuality, even the possibility of dying young.
It is, therefore, an excellent idea to mention the guardians of your young ones till they turn 18.
Similarly, if you are the breadwinner of the family, you need to have a will to ensure that the right people get the assets when you die. It helps prevent things from getting dirty and ugly eventually.
5. Minimizing the Tax Burden of Your Heirs
Estate planning protects your heirs from the Internal Revenue Service, irrespective of whether you are poor, employed, a businessman, wealthy, or even Elon Musk.
When planned the right way, you will have different ways to reduce the tax implications on your beneficiaries, be it federal estate taxes, state estate taxes, or state inheritance taxes.
Conclusion
It is crucial to start building your estate as soon as possible. As you grow older, it becomes even more imperative to grow your wealth when you are in your 40s.
If you feel that retirement and estate planning is daunting and tiresome, employ the services of professional financial advisors to help you create a customized estate plan for you.
