From managing your extended retirement to preparing better for your potential long-term care needs, these are among the primary reasons estate planning is now more crucial than ever, particularly as people live longer. Adequate legacy management and inheritance planning can also help prevent family conflict.
Despite all those critical reasons, few Americans have done any work for future planning.
According to a study conducted by the Pew Research Center, for instance, only about a third of U.S. adults have created a will, living will, or advance health care directive. The rates are higher among older Americans (those in their 70s), but are still just around two-thirds.
Don't wait until it's too late to plan what to do with your estate. By recognizing its importance, you can start planning not just for your future but also that of your loved ones.
What Is the Best Definition of Estate Planning?
Estate planning is the extensive legal process of arranging the management and transfer of your assets and affairs in preparation for your potential incapacitation or passing.
Writing a will is just one of its critical components. You must also plan for financial longevity, given that people's lifespan has lengthened over the years.
Some of the primary elements your estate planning should involve include:
- Asset distribution: Defines the methods for asset protection and distribution (e.g., property and investments) to your named heirs or beneficiaries (e.g., your chosen charitable organizations)
- Incapacitation planning: Designates trusted individuals who'll make financial and healthcare decisions on your behalf if you become medically incapable of doing so
- Guardianship: Names specific individuals as guardians to care for your dependents (like minor children) in the event of your passing
- Tax efficiency: Employs strategies, usually under the guidance of financial and legal professionals, to mitigate applicable taxes and preserve more of your wealth
With a robust estate plan, you can maximize your assets and wealth while you're still healthy, while also safeguarding the financial future of your loved ones.
What Is the Biggest Mistake With Wills?
The biggest mistake with wills and estate planning is not having any will or plan at all. Choosing an irrevocable (non-modifiable) will over a revocable living trust (modifiable) can also be a big mistake. Another is failing to update estate documents, particularly after significant life changes.
Why Is Estate Planning Even More Crucial Now That People Live Longer?
The global average life expectancy has more than doubled since 1900. As Our World in Data points out, back in the 1900s, people only lived an average of 32 years. Fast forward to 2023, and this has risen to an impressive 73 years.
People living longer is undoubtedly good news, but it also means more economic and financial pressure. Here's how adequate estate planning can help ease some of these burdens.
Better Management for Extended Retirement
The longer you live, the more retirement expenses you can expect to face. It's no wonder many retirees who haven't prepared well during their working years are "unretiring."
According to Investopedia, a fifth of Americans over the age of 65 have returned to the workforce. Trends and projections are also showing this number to climb even higher. Key reasons include savings and Social Security not keeping pace with the increasing costs of:
- Housing
- Everyday essentials
- Health care
By starting estate planning as early as you can, you're more likely to be able to account for extended retirement and the expenses associated with it.
Improved Preparation for Potential Long-Term Care Needs
Longer lifespans come with the increased risk of needing "Long-Term Services and Supports (LTSS)."
LTSS refers to personal care and medical services (unpaid and paid) designed to help people who need assistance with activities of daily living (ADLs). ADLs are the tasks a person must be able to perform to look after themselves. It's also a measure of one's independence.
Just a few examples of LTSS are:
- Bathing or showering
- Dressing
- Transfering
- Mobility
- Feeding
- Medication management
- Financial management
The need for LTSS increases with age. According to AARP, for instance, about 56% of people turning 65 between 2021 and 2025 will need these supportive services within their lifetime.
If the day comes when you can no longer manage ADLs and personal affairs independently, you'd need to rely on either unpaid or paid LTSS. By planning for this potential event beforehand, your family will know what to do based on what you've outlined in your will or healthcare directive.
Prevent Family Conflict
As much as you'd like to think that your family won't have disputes over your assets and wealth, it can still happen. Conflicts can arise from contradictory or unclear instructions, whether they're about:
- Asset division
- Healthcare decisions
- Guardianship
The good news is that you can minimize the risk of those problems occurring with estate planning, as your documents will clearly define and outline instructions. By having these directions in place, you can prevent family feuds, which can lead to prolonged court battles.
Frequently Asked Questions
At What Age Should You Start Estate Planning?
Many people mistakenly think that estate planning is more for older adults, but the truth is, it's for every adult, including those who've only turned 18.
Remember: Parents lose automatic rights to their children once their kids turn 18, as this is the legal age of being an adult. Without an estate plan, young adults may end up not having anyone to make financial and medical decisions on their behalf if they become incapacitated.
Which Types of Professionals Help With Estate Planning?
There are several, with the primary one being an estate planning attorney. They're legal professionals responsible for drafting estate documents, such as:
- Wills
- Trusts
- Powers of attorney
They can help ensure these essentials are valid and remain valid under the law.
Financial advisors can also assist by ensuring your estate plan aligns with your financial goals. They can suggest suitable retirement accounts and investments and manage them on your behalf.
Begin Your Estate Planning Today
Estate planning isn't something you should put off until you're in your older years. Start as early as possible (18 years old), as doing so can help you prepare better for your future, especially as you have the potential to live longer.
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