We are all going there! We know that but we would rather think of it as something distant. We experience the pain of seeing our relatives, friends, neighbors, colleagues and even acquaintances who are our children’s age, pass away, and even so, our subconscious holds onto the idea that our turn is far from coming. It is just a topic we don’t want to deal with, but we have to. Let’s try to focus on the benefits that this represents for our loved ones that survive, rather than from a depressing point of view: our end.
What is the objective of estate planning?
It has to do with time and situations related to the end of our life. The purpose of this is to give us some peace of mind and let our spirit rest as we go to the final resting place and maximize the legacy for our family in terms of personal, emotional and financial aspects. Estate planning mainly covers two areas: personal and financial aspects. In the personal part, it includes topics such as child care, especially for those who are still dependent, as well as your wishes for what should be done with the administration of your assets and decisions in case of severe disease, senility and mental disability. From the financial perspective, there is the planning of the distribution and administration of the inheritance after we leave. It is important not to confuse estate planning with making a will. The will is part of the estate planning.
PURPOSES OF ESTATE PLANNING
We will mention the most important goals:
Planning childcare in case that both parents die simultaneously. This is when we use the denomination of guardian (godfather in some countries). This is their real role. If you made the right decision when choosing your children’s guardian or godparent, it is time that you remind him of his responsibility. If you only choose a decorative guardian, it is time that you find a real one for your children: a guardian whom you can trust to take good care of your children.
Avoid giving your family the responsibility of making tough decisions in case of mental disability. In the case that you become unable to make decisions, you might not want your family to pay for a long and incurable disease or expensive surgery with limited possibilities of recovering. It will be difficult for your partner or children to take a pragmatic decision. Your thoughts expressed in the estate plan will be of great support for them. You could also leave this decision in someone else’s hands like a doctor friend, maybe someone who knows both your health situation and your financial situation.
Distribute inheritance in a fair and convenient way. By giving precise instructions on how to distribute your assets after your death you will protect your beloved ones and prevent any conflicts among them. Your instructions will prevent any potential conflicts. If any of them are not satisfied with the result, it will be your fault and not the other heir’s fault. Anyway, if you decide to leave more for someone and less for others, I’m sure there will be an explanation for this. It’d be ideal to let them know while you’re alive and preparing your testament. If you do this, there won’t be any hard feelings among your beloved ones. According to your estate plan, you have the option to leave a will. In case you don’t, the distribution of your assets will be done according to the Estate law of your country. Most legislation will give priority to your spouse or partner that lives under the same roof and then your children. In the absence of both of them, the distribution will be based on the degree of consanguinity of your heirs.
Planning your assets administration in case that your heirs aren’t willing or aren’t capable of managing it. It happens sometimes that a widow or the children get a considerable inheritance, enough to maintain the quality of life that they have been accustomed to, but they don’t know how to manage it and soon, they will realize that their money is gone. To prevent this situation, you must prepare your potential heirs on how to manage the family’s financial issues and, when needed, to choose a reliable tutor to manage the financial affairs of the family or at least to provide some support. In the case that you don’t have a person you can trust, there’s another alternative, which is placing your money in a trust in a bank or other financial entity. The only disadvantage is that, in general, costs are very high. Another option is having your investment advisor as support, which won’t cost you that much.
Avoiding or reducing estate-related taxes. Last but not least. It is actually the opposite; it is important that you know about estate-related taxes law in your country and the place where your assets are and also, you should foresee the effect that they will have on your estate planning. After this, you should launch the necessary alternatives to avoid or reduce taxes. In certain countries, estate-related taxes tend to be very high. They could even take a considerable part of your inheritance if this is avoided by evading taxes. This method is becoming less and less popular (remember it’s illegal!). New advances in computing have let governments and tax institutions be more efficient in collecting taxes.
Why should you plan your estate during the third stage?
During the family formation stage you will have to play the roles of son/daughter as well as of dad/mom. Your parents will be going from pre-retirement to retirement, and your children should be going through their first stage. You will probably have to take care of both, your own planning and your parent’s. It is possible that they have never heard of the importance of preparing an estate plan. You will have to find the way to talk about it with them. Later, we will give you some suggestions. In regard to your young children, have you thought of who’s going to take care of them in case that you and your partner pass away or you become disabled due to an accident or any other circumstances? It is not usual, but it does occur. Probably you have certain preferences for some close relatives because you know you can trust them, both in their managing skills to look after your assets and their ability to raise your children. It is better if you and your partner make this decision. Talk to the person you have chosen so that he/she gets prepared. The guardian or tutor is plan B. They should act as an additional support or substitute in case that the family member needs him/her.
When should you prepare your testament?
An estate plan itself is nothing more than a private document with no legal power. So, in order to give some real value to your decisions, you should write a will. It is good if you also attach an instruction letter with it. When to do it? This is a personal decision that will depend on your situation. If you ask any experts, the answer will be as ambiguous as: “as soon as possible”. It is better to change it for “the sooner, the better”, meaning that you should do it as soon as you have some property and/or dependents to care for.
Is it prudent to suggest to your parents to write a testament?
It is not only advisable, but recommended. If your parents still haven’t written it, maybe it’s because they don’t know the possible consequences of not writing it. It is important but it is hard to face the topic. It requires a delicate touch. It probably requires a specific strategy like giving them a copy of this book, or talking to your lawyer, accountant or a friend so that they can give them some suggestions. Another strategy can be for you to look for advice from your parents as you prepare your own estate planning. This will make them think about their own plan.
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