What Is Estate Planning and Why Do You Need It?

Estate planning might seem like a morbid topic, as it involves what happens after a person's death. However, proper estate planning can have several benefits for your heirs, especially if you're no longer able to attend to your affairs. If you're not sure if your affairs are in order or want to know more about how to prepare a thorough estate plan, this guide can help.

What Is Estate Planning?

Estate planning is a legal directive that determines the distribution of assets when a person dies or becomes incapacitated. The estate plan usually consists of wills, trusts, power of attorneys and health care directives. The objective of an estate plan is to protect the assets. It's also to ensure there's enough liquidity in the estate to reduce the burden for beneficiaries and potentially create a financial legacy for them. When you're in an assisted living community, your estate plan will cover the level of care, how your assets will be used to facilitate that care and your health care wishes for the various situations that might happen in assisted living.

Why Do You Need Estate Planning?

Estate planning is a secure way to ensure your wishes are taken care of when you're no longer around or unable to care for your loved ones or take charge of your assets, such as if you need to move to the memory care section of Park Regency Thornton. There are several reasons an estate plan should be considered.

Take Care of Your Loved Ones

It's important to consider what impact the loss of a person will have on the household. For instance, if the person financially contributes to the household and the loss of that contribution will leave the family financially destitute, it's important to set up an estate to protect the income through insurance, investments or savings. Financial contribution is not the only consideration when setting up an estate. It's also important to set up a plan in the event that a primary caregiver becomes incapacitated or dies.

Plan for Taxes

When setting up your estate plan, it's important to have measures in place to take care of your taxes and ensure there's minimal tax liability on your heirs. Careful planning can reduce taxes on the estate significantly. There are several taxes to be aware of during this process:

Gift taxes and state gift taxes
State estate taxes
State inheritance taxes
Generation skipping transfer taxes
Income taxes

Decide Where Your Assets Will Go

An estate plan enables you to distribute your assets the way you see fit. That means you're able to allocate assets to individuals or trusts in the best interest of the assets and beneficiaries. This can also be helpful if you become incapacitated and need the assets to pay for your care and the well-being of your loved ones.

A valid estate plan that includes a legal will also provides the means to prevent probate. Probate happens when the will is challenged or no valid will is in place. When probate is successful, the court decides how the assets are distributed among the heirs.

Pass on a Business

A business succession plan is essential if you're considering the legacy of your business and want to maintain it for future generations. It ensures the business can carry on when you're no longer around or unable to handle it. Some of the benefits include:

Providing continuity in the business. A full business succession plan will cover the tasks, training and operational requirements of the business. This plan should equip whoever takes over the business with information on how to keep it going.
Protecting legacy. Those who wish to preserve their businesses for future generations will need to detail the distribution of assets. This includes dividing the shares.
Providing clarity. When there are multiple heirs or owners of the business, the dividing of the shares and assets can become tricky. A business succession plan details the wishes of the owner and details exactly what needs to go to whom.
Avoiding taxes. Some taxes are avoidable through proper estate planning, even in the transfer of business assets to heirs.

You may no longer wish to carry on with your business if you've opted for assisted living. A business succession plan allows you to enjoy your time in your community knowing your business is in good hands.

Make Decisions Regarding Your Health

Living wills and advanced medical decisions need to be documented ahead of time — and according to state laws. This will help with important medical decisions such as do not resuscitate (DNR) orders, advanced medical care and assisted living. It will allow your caregivers to know how to best respond to certain medical situations in accordance with your wishes.

Who Does Estate Planning?

There's a lot of material available to help guide individuals through the estate planning process. However, a registered financial advisor or tax advisor can provide comprehensive service in this regard. These industry professionals are well-versed in the latest legal requirements for estates. They can make recommendations in terms of estate shortfalls and how to structure inheritances to reduce tax liability for the heirs. Some of the industry professionals to consider in the process include: