Have you done your Estate Planning?
You know an effective Estate Planning can keep you out of trouble!
Estate Planning is one of the most neglected area of financial life for most people because they have some false myths about Estate Planning! Some people wait for their retirement for estate planning, whereas others simply ignore it.
In this article, we will explore all the common myths about Estate Planning and acquaint you with the facts and the right procedure to do Estate Planning.
Letās get started with the basic definition of Estate Planning.
What is Estate Planning?
You are supposed to plan about how much of your estate such as your property, car, financial investments, and other assets you want to pass down to whom and how, after your demise.
You can review the estate planning process periodically and make necessary changes as and when required.
Common Myths about Estate Planning
Myth #1: Estate planning is applicable only for the Rich people
Fact: Estate planning is essential for all. It does not matter how much you own in your accounts or the number of valuables you have. It is nothing but passing down your assets to the person of your choice.
Myth #2: Post Retirement is the right time to do Estate Planning
Fact: Life is quite unpredictable and hence, the earlier you plan, the better it is. Having a plan in place is the best thing you can do it for yourself and your loved ones.
Myth #3: My legal heirs will handle it maturely
Fact: It is good to hope that they do, but unfortunately many disputes often happen over money in today’s world. Hence, it is better to put across your wishes explicitly on paper.
Myth #4: Seeking legal opinion is unnecessary
Fact: There is nothing wrong with seeking a legal opinion. Just like a doctor is an expert in his, a lawyer can guide you to ensure that estate planning is done legitimately considering the nitty-gritty involved.
Myth #5: Wrong perception about nomineeās share in estate distribution
People wrongly believe that once they have mentioned the name of a nominee in their bank account, mutual funds, Demat account, PPF account, post office deposit, or in a life insurance policy. They āassumeā that this person will be the next owner of their assets in case they die! And, it is NOT true.
The role of a nominee is just like a ātrusteeā or a ācaretakerā who will be handed over the investment after the death of the main holder. A nominee is just a contact point who can claim the custody of the particular investment product. A final claim on a financial product will be of the ālegal heirsā.
Most people donāt even mention the name of nominee regarding who will get what after their demise; and they assume:
- My wife will get 100% share AND no one else will get it.
- Family members will receive their share in equal proportion after my demise.
- My fatherās property will be rightly claimed by me 100%
- I am a married woman now; I donāt have any right to claim a share in my fatherās wealth after my marriage.
- There wonāt be any problem to claim the bank account, mutual fund, insurance policy, etc. even in the case, estate planning is not done!
Fact: People have these false perceptions because they lack knowledge about estate planning and they simply ignore it and donāt want to learn about it. Wise estate planning is the best way to pass on your financial assets to your loved ones.
Letās see some of the reasons why people avoid Estate Planning?
Why do people avoid Estate Planning?
Now, letās take a real-life example to understand the necessity of estate planning.
The necessity of Estate Planning
For example, letās assume that Mr. Prakash dies without a will. He has a sister and a brother, but no wife or children.
Because Prakash died intestate (or without estate planning), the estate goes to the court. In this case, a judge has to allow the transfer of Prakash’s money and property to the sister and brother. This procedure opens the door for relatives or third parties to contest the judge’s decision or to offer their interpretations (or misinterpretations) of Prakashās last wishes, therefore the court proceedings will go on for years because of the neglected Estate Planning by Mr. Prakash.
If only he might have written a Will in favor of his brother or sister, there may not be any such legal drama on his estate in the court.
There may be various individual cases in different families. Therefore, it is always wise to plan your estate well in advance in order to avoid any kind of court interference, which, most probably, will not work in favor of your loved ones.
Understand the process of Estate Planning
At the outset, you have to make a list of assets you own. Then determine how you want your estate to be distributed.
Before executing your estate plan, decide on the means of transferring your assets either Will or Trust, described in a later section.
Keep reviewing your estate plan regularly.
Means of transferring your assets:
Major benefits of Estate Planning
Prevents financial and legal grief to your family
Avoids complications, bitterness, drift, and disagreement in the family
Ensures that all your assets are passed on to the right people according to your will
Estate planning can also help you pass your accolades to a specific individual
Helps to prepare for contingencies
In the tough times when your family may be down emotionally, you donāt want them to undergo financial and legal grief. With a wise estate planning long-term financial interest of your loved ones can be ensured, and this way the long and complicated legal process can be minimized.
Death is certain, yet uncertain as far as the time is concerned. Therefore, a wise financial and estate planning can protect the long-term financial well-being of our family.
Your legal heirs maybe not experienced in managing your legacy. This can complicate relationships and lead to bitterness and drift within the family. But drawing an estate plan wisely can help you manage these complications.
Estate planning ensures that all your assets ā physical, financial and online ā are inherited by the people to whom you want them to be transferred after your demise.
If you are defense personnel and wish to give your war medal, which has some sentimental value to your younger daughter who has an interest in war history; this is possible through wise estate planning. But in the absence of proper estate planning, it may or may not be granted to the person of your choice.
With systematic estate planning, you can even determine who will handle all your financial affairs, when you become aged and not able to do it by yourself.
Similarly, you can also specify a person (whom you trust) who would take all medical and health-related decisions for you.
In the next section, letās understand the essential things to know about estate planning.
Essential tools of Estate Planning?
There are 5 essential tools to understand Estate Planning:
- A Will
- A Trust
- Succession Laws; and
- Joint Accounts
We will discuss all of them in greater detail in Part-2 of this article.
At this point, it is essential for you to understand that even if you know all the relevant information about estate planning you cannot do it all by yourself.
There are many minor details and small points that a common person does not know, which can create issues later. An estate planner has a deep understanding of estate planning tools and he will use the right formal language. He will be able to put your exact thought process and requirements on a paper and use legal language, which will leave no ambiguity. Hence, itās strongly suggested to hire the right estate planner.
So, how will you select the right estate planner? We will answer this in the next section:
How to Select the right Estate Planner?
While choosing the right estate planner you can ask important questions such as:
- The principal area of practice
- Apart from Will writing, do they help to institute a Trust
- The years of experience and how has the journey been thus far
- The fees involved ā fixed or on time basis
- Which services do the fees include
- Do they provide a review and maintenance (to account for any changes in law or your personal circumstances, as the testator), etc?
Also, study a few testimonials and get a sense of the service. Do enough research and reference checks; talk to people whoāve hired his/her services, but beware of one size fits all approach.
We hope you have gained enough clarity on the basics of Estate Planning. In the second part of this article, you will learn Estate Planning tools in greater detail.
So, if you had any of the myths about estate planning described in this article, itās the right time to equip yourself with the right information.
Estate planning is not only for rich or retired people, but it has to be done at the earliest and keep reviewing it timely.
If you have any more specific queries on Estate Planning feel free to drop them in the comment below.
We will help you to create a financial plan personalized with your needs, click the link below and register for your FREE Financial Planning Consultation Call.