Planning for your own death isn’t a pleasant exercise, but it’s too important to ignore. That’s especially true if you have children or other financial dependents. Estate planning is a critical component of any financial plan because it helps you protect those you love after you pass away.
An estate plan provides formal, written instructions to your loved ones on how to manage your assets after your death. It may provide financial support to your beneficiaries and loved ones. It also may direct your heirs on how to split up your assets. In some cases, an estate plan helps you protect your assets should you become incapacitated because of cognitive disorders in the final years of your life.
Do you have a legacy that you want to leave for your loved ones after you pass way? You’ve probably worked hard to build an estate that includes investments, cash, retirement accounts, real estate and even personal property. As you approach the later years of your life, you may be thinking about how to distribute them to your family.
Unfortunately, some of your assets may not go to your heirs. Many estates face a substantial amount of costs, like legal fees and administrative expenses. These costs can erode your legacy and reduce the amount of assets that are passed to your loved ones. Your family may end up with only a fraction of your estate.
You probably know that a will is the most fundamental part of any estate plan, but did you know that a will doesn’t have to be the only component in your plan? A will can achieve many things, including the distribution of your assets to the appropriate heirs. However, a will can’t do everything, and there may be some goals best accomplished through a range of other documents known as will substitutes.
Simply put, a will substitute is a document or tool that acts in place of a will in the estate distribution process. A will substitute may apply to your entire estate or to specific assets. Some will substitutes are strictly estate planning tools, while others are financial tools that can also be used for other purposes.