In this era of uncertainty, most business owners in their 30s and 40s are focused on building their businesses, accumulating assets and making decisions that affect them in the here and now. While a growing number are starting to consider their retirement outlook, few are giving much thought to the state of their estate and the consequences of not having a plan in place. What they don’t realize is their neglect of these issues can adversely impact their loved ones.
Why You Need an Estate Plan
Everyone has an estate plan. The question is whether it was created by you or provided to you by the state. Absent some of the basic legal instruments available to everyone, the state becomes your conservator or executor and will make all of the decisions regarding your legal and financial affairs, including the guardianship of your children.
Estate Planning Essentials for Business Owners Under 40
The objective of your own estate plan is to ensure that the intentions and desires you have for you and your family are strictly adhered to as provided by the laws of your state. Most people are pleased to learn that creating that critical layer of legal protection is relatively easy and inexpensive, involving just a few key instruments:
A will is a basic but very critical document that becomes the framework of your estate plan. Essentially, your will is the key instrument that ensures your property is distributed according to your wishes. If you don’t want any of your property going to your estranged uncle, you just leave him out of the will. If you have children, your will names a guardian so you know who will be watching over them. Otherwise, the state will name one for you. You also name an executor so you know each provision of your will will be followed.
Power of Attorney
A power of attorney is your written authorization to grant someone you designate with the power to act on your behalf in your private affairs as well as business and legal matters. A durable power of attorney extends that authorization even if you become incapacitated due to health reasons.
Living Will / Health Care Proxy
A living will is separate from your legal will in that it takes any medical decisions out of the hands of your doctors and family. It is a legal document instructing medical practitioners of the type of medical intervention you want in the event you become mentally incapacitated.
A living trust is like an addendum to your will that goes into more detail as to how your property is to be distributed. It also acts as a receptacle for your assets, holding them in the name of the trust. This not only allows all trust-held asset to pass outside of probate, but it can also include instructions for how assets should be managed before they are distributed.
The primary purpose of life insurance is to ensure that those who are financially dependent on you will have the liquid capital available when it is needed the most. While life insurance is most thought of a replacement for lost income, it can play a critical role in providing the liquidity needed during the time of estate settlement. A lump sum of capital may be needed to pay legal fees, final medical expenses, debts, and, if the estate is large enough, estate taxes. It’s recommended that your life insurance program, including the naming of beneficiaries, be coordinated with your estate plan. For larger estates, consideration should be given to housing your life insurance inside an Irrevocable Life Insurance Trust so that the proceeds won’t be included in your taxable estate.
When to Seek Estate Planning Guidance
You may be young now, but as you embark upon a lifetime of saving, investing and accumulating assets, the best time to begin arranging your estate is the moment you begin to think about it, even if it's just to draw up a simple will. Estate laws are among the most complex laws with which people will ever have to contend. And, the fact that they are subject to frequent changes makes it nearly impossible for the layperson to stay abreast of them. When planning an estate, no matter the size, the stakes are high so it almost always pays to seek the advice of a qualified estate planning professional.
Read other financial articles
Copyright © 2005-2019 Small Business Resources. www.sbresources.com. All rights reserved.