An estate plan is a set of documents that outline how you’d like your assets to be handled after you die or if you became incapacitated. Your assets may include your home, your investments and anything else of value, plus any other important responsibilities you have, such as children or a guardianship.
According to a recent survey, inflation has caused more people to see a need for an estate plan. It also found that younger adults are now almost as likely to have a will as middle-aged adults. Yet only 34% of Americans say they have a will or other type of estate planning document in place.1
Many people put off estate planning either due to lack of motivation or the assumption that they don’t have enough assets to make it worthwhile. However, a good estate plan covers who would make decisions for you about your finances and your health if you were no longer able to, no matter your age or level of wealth. And when it comes to getting started, there’s no time like the present.
Here’s a look at four reasons why estate planning is important.
Many people think an estate plan deals exclusively with financial assets. But that’s only a part of it. The most basic estate planning documents should include:
Part of estate planning includes appointing people to play key roles for “in the event of” scenarios. Consider and discuss the following roles with your attorney.
Taxes are an inevitable part of life, but there are ways to minimize the taxes that will be payable on your death. As part of your estate planning process, you’ll estimate your total assets, which include:
Federal estate tax is payable if your assets reach a certain threshold at the time of your death; currently, this is $12.92 million or more per individual. This tax must be paid before your assets are distributed to your beneficiaries.
Ideally, your estate plan will include tactics that will reduce your overall assets to less than the estate tax threshold. These tactics could include charitable giving, an irrevocable trust or an irrevocable life insurance trust (ILIT) policy.
Gifting to loved ones is another way to reduce the amount of your total assets during your lifetime. Importantly, you won’t have to pay gift tax as long as you stay under the gift tax limit (which is $17,000 per recipient in 2023).
Along with charitable giving, there are other ways to give that aren’t subject to gift tax, including:
A comprehensive estate plan will assess all tactics and implement those that are most appropriate to your circumstances.
Not accounting for what happens to your assets can open you and your loved ones up to risk. If you were to face an untimely death, the statutes of the state where you reside will dictate the terms of your default plan. The courts will appoint an administrator to settle your estate, which can be an expensive process, and one that you wouldn’t have control over.
Estate planning includes many legal and financial documents. A financial professional can make the process feel more manageable by helping you account for your assets, your finances, and your life situation. Plus, a financial professional may make your trustee’s life easier by handling many administrative burdens that can sometimes be overwhelming.
Regardless of your finances or age, talking with a professional about why estate planning is important for you can help ensure your loved ones are cared for if anything were to happen to you.
Learn about trust and estate services at U.S. Bank.