This is because, in financial and legal terms, an estate simply consists of all your possessions. This can include your home or other property, but also your car, investments, life insurance, furniture, or other personal possessions, and even your current and savings accounts.
Think of estate planning as a road map for making sure your wishes are carried out when you pass away or are unable to make decisions for yourself.
The reason estate planning is so important is that without it, your assets can wind up in probate for a considerable length of time. This can put an unnecessary burden on your heirs and other family members who are left to deal with sorting out your finances. Besides making sure your assets get to the people you choose, planning can help minimise various tax issues too.
Without estate planning, and specifically a will, the laws of intestacy will determine what happens to your possessions, and the courts can decide who gets custody of your children.
What are the documents needed for estate planning?
Every estate is different, but the following is a list of some commonly included estate planning documents.
Living will
This is different from a last will and testament and is used to define your wishes for end-of-life treatment if you ‘re terminally ill. For example, you could define if and when you would like to be removed from life support.
Trusts
While there are different types of trust, they all centre around a relationship in which one party (the settlor) gives another party (the trustee’s) the right to hold the title of property or assets for the benefit of a third party (the beneficiary).
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Life insurance
Life insurance can be added to an estate plan (if it is not written in trust) to help your loved ones replace lost income, pay the mortgage or rent, or even to cover funeral or other end of life expenses in your absence. It can also be used to leave a legacy.
Beneficiary forms
Some assets, such as life insurance, allow you to name a beneficiary and a contingent beneficiary. This helps avoid probate and allows the asset to be paid directly to your loved one. So, it is important to keep these designations up to date.
Estate planning costs will vary based on the complexity of your estate.
People with more complex planning needs may want to consult a financial advisor and an estate planner to help guide them through the process. The cost for these services can vary, too. Some offer flat estate planning rates, while others charge an hourly fee.
While creating an estate plan can seem overwhelming, it does not have to be. Having a last will and testament is an important part of every estate plan, making it a great first step in getting your plan in place.
