Littlejohn: Five benefits of estate planning

Brian Littlejohn
Speical to The Aspen Times
Guest Commentary
The Aspen Times

Are you looking for a worthwhile New Year’s resolution? Estate planning isn’t just for the ultra-wealthy, nor is it something you should put off until your golden years.

A recent survey found that a staggering 66% of Americans haven’t done any estate planning at all despite the ongoing COVID-19 pandemic. 

Indeed, a comprehensive estate plan helps ensure your assets are distributed according to your wishes when you die. In addition, it can help minimize transfer taxes and protect your loved ones — especially those who depend on you financially. However, proper estate planning also ensures your wishes are honored if you become incapacitated. 

Given the many reasons estate planning can benefit you, your family, and your legacy, no financial plan is complete without it. 

Benefits to Consider

No. 1: It Can Protect You and Your Assets During Your Life

If you become mentally or physically incapacitated during your lifetime, you may no longer be able to earn money or make decisions for yourself. Documents generated as part of the estate-planning process typically include provisions that address these risks to protect your family’s lifestyle and assets. 

For example, disability insurance can help provide for you and your family if you’re no longer able to work. In addition, it’s helpful to legally designate a health-care proxy or power of attorney and financial power of attorney who can make decisions on your behalf if necessary. Otherwise, this responsibility may go to someone who doesn’t have your best interests in mind. 

No. 2: It Can Efficiently Distribute Your Assets 

Without a will or trust, your home state’s probate laws will govern the distribution of your assets. The right legal documentation can save your loved ones time and frustration while honoring your intentions. 

To avoid potential conflicts among family members, it’s best to update your estate-planning documents as your financial situation and family dynamics change. For example, review your designated beneficiaries on investment accounts and insurance policies regularly — and especially after a major life change. In addition, make sure your will and associated documents reflect your current wishes. 

No. 3: It Can Help Minimize Transfer Taxes 

There’s no way to predict what tax laws will take effect in the future. Nevertheless, it’s safe to assume the IRS will want its share of your estate when you transfer it to others.

If you plan to leave significant wealth to your loved ones when you die, proper estate planning is crucial. Wealthy families may benefit from certain strategies to minimize taxes on transferred wealth, including life insurance, Roth IRA conversions, lifetime gifting, and trusts.

No. 4: It Can Help Preserve & Protect Family Wealth 

As people accumulate wealth, they often become the targets of frivolous lawsuits and, in some cases, extortion. That’s why proper asset titling is a key component of an effective estate plan. A well-thought-out asset titling strategy can minimize your exposure to taxes and ensure your wealth transfers efficiently. It can also shield your assets from predators and creditors attempting to separate you from your hard-earned money. 

Similarly, insurance can also be an important component of your estate plan. For example, life insurance and umbrella insurance can provide funds to preserve your estate or protect your wealth against a variety of legal challenges.   

No. 5: It Can Help Facilitate & Continue Your Legacy

Legacy planning — how you want others to remember you — is an important element of the estate-planning process. For example, many people choose to donate money or assets upon their death to causes they supported during their lifetime. They may achieve their charitable goals by setting up a family foundation, contributing to a donor-advised fund, or establishing a philanthropic trust.

You may also use the estate-planning process to have frank discussions with your family about the family’s wealth. In addition, you can take the opportunity to educate younger generations to be good stewards of the wealth they will eventually inherit.  

Level Up in 2023

While estate planning can be an emotional process, it can help your family avoid many of the challenges associated with settling your estate. It can even help provide care for minor children or adult children with special needs. 

Undoubtedly, proper estate planning can be a time-consuming undertaking. However, since these are matters of life and death, I would argue that it’s well worth the time (and money) spent.

Brian Littlejohn, MBA, CFP®, CFA is the founder of Sherwood Wealth Management, an independent, registered investment advisor firm that specializes in inherited wealth. He lives in Woody Creek and works with clients in the Roaring Fork Valley and beyond.