Wealth—you can’t take it with you. But that doesn’t mean you don’t care what happens to it when you’re gone. You spent your lifetime building and protecting your assets and you want to make sure they’re not swallowed by court fees or passed down to the wrong people.
An estate plan protects your wealth when you’re no longer able to, allowing you to make smart decisions about your money now to ensure your loved ones will be taken care of in the future. But if you’re like six in 10 U.S. adults, you probably don’t have one yet. A lot of people mistakenly think wills are only for rich people or that making them is something you do later in life, which is probably why 80 percent of millennials and 64 percent of Gen Xers haven’t made one.
Here’s the truth: Estate planning is for everyone, no matter how modest your assets are, and it’s never too soon to start. If you have young children, your will determines who will raise them in your place. Even if you don’t have children, estate planning makes financial sense—both now and for the future. Here are three reasons why:
1. Save your heirs money
When someone dies without a will, it’s up to the courts to decide how to divide the estate. Assets remain frozen while the estate works its way through probate court—a process that can be long and costly, dragging on for months or even years and depleting the inheritance long before your family receives a penny.
An estate plan helps keep your wealth intact as it’s transferred to your heirs. Since you’ve already outlined who should get what, as well as who will execute your will when the time comes, the courts don’t need to make those decisions for you. This can make a significant difference in how much of an inheritance you ultimately leave.
2. Catalog your assets
During the estate planning process, you’ll end up taking stock of everything you own, including retirement accounts, pensions and any other sources of capital you might have. You’ll also be asked to think strategically about how to maximize the value of every asset. This is a prime opportunity to take a snapshot of your financial landscape and decide how you want to move forward.
People often think estate planning is only good for the people inheriting their money. But just going through the process can give your finances a tune-up while giving you new ideas about how to make the most of your wealth.
3. Minimize the tax burden
Depending on where you live and how much your estate is worth, your loved ones might have to pay taxes on their inheritance. Some states charge an estate tax, which comes directly out of the estate, while others have an inheritance tax that comes out of the heir’s pocket. While these taxes usually only apply to larger inheritances, one of the main goals of estate planning is to distribute your wealth in a way that minimizes your family’s tax burden.
There are many different ways to transfer your wealth. You can put it in a trust or a Roth IRA. You can dole it out over the years via annual tax-free gifts to your loved ones. Even minimal estate planning can make a significant dent in the amount of taxes they’ll have to pay.
Estate planning may not be the easiest thing to think about, but it’s one of the best things you can do for your finances as well as your family.