Estate Planning: Definition and Benefits
Estate planning, a service offered by wealth solutions firms such as J.P. Morgan Chase or Ora Partners, is planning for what you want to happen to your assets at the end of your life. Most people think that estate planning means preparing a will, but it actually covers so much more.
You need to decide who will manage your medical care and assets if you lose the capacity to make important decisions, plus what type of medical care you will consent to. Deciding what kind of life insurance you want is also important. It would be best if you also considered whether to establish a trust, which is a legal agreement detailing how the assets in the trust will be distributed. A trust also names a person, called the trustee, who will manage the distribution.
Who needs an estate plan?
The short answer is everyone. Of course, creating an estate plan and hiring an attorney may not be for everyone. There are online estate plans if you need a more affordable option. But if you have children or dependents or sizeable wealth, stick with an attorney.
Even if you don’t fall into those categories, you should still consider setting up an estate plan. It’s impossible to know what will happen in the future, and some parts of the plan can take a long time to come together.
What are the key benefits of an estate plan?
You make the decisions about your assets and medical care: If you become incapacitated or die before you put everything on paper, a court will decide what happens. It means a guardian appointed by the government can make crucial medical decisions for you, including whether to sell your assets so you can be moved to a nursing home. And probate court will divide up most of your assets.
You can reduce tax: In 2023, the first $12.92 million or less of a single person’s estate is exempt from federal estate tax. Married couples can shield a total of $25.84 million. In 2024, these exemptions will be $13.61 million for single individuals and $27.22 million for married couples. They may seem high now, but there is no guarantee that the numbers won’t go down in the future. Putting your assets in a trust, determining value, or leaving all your assets to a spouse who then claims an exemption can significantly reduce your estate tax. There are also fees for estate management items that you can eliminate or reduce with proper planning.
You can plan for your dependents:Life insurance is an essential consideration for every responsible adult, regardless of their financial circumstances. This financial product provides an invaluable safety net to ensure that your dependents are taken care of in the event of sudden or unexpected passing. Even if you may not have significant assets, a life insurance plan can still enable you to provide for your loved ones in a worst-case scenario. However, it is essential to contemplate the specifics of the potential outcomes and the impact they may have on your dependents. Deciding on who will act as custodian of your underage children and how your pet’s care will be handled are just a few things to consider when planning your life insurance policy.