The costs associated with settling an estate for which no planning was done can create an endless swinging door of bill collectors during the probate process. Probate is the process of proving in court who the assets are supposed to go to.
An unplanned estate can incur large fees to be paid for legal, accounting, appraisal, and executor services. A large portion of these fees can be avoided by having all the essential estate planning documents in place.
For large estates, death taxes, often referred to as estate taxes, may also apply.
An additional problem that occurs with an unplanned estate is the lack of liquid funds. Settling an estate requires having sufficient cash or cash equivalents to pay bills and provide income for any dependents left behind. When the majority of assets are illiquid this can leave loved ones such as a spouse and minor children in an uncomfortable financial position for far too long.
Taking Care of You
When we think of estate planning, we instantly think of death, but proper estate planning covers more than that. What happens if you are in an accident and unable to manage your financial affairs? If you have not drawn up the proper documents then the courts decide who gets to manage things for you.
The same thing applies to medical decisions - if you have not named someone who can make health care decisions on your behalf, then if you are incapacitated the court will have to name someone. I'd much rather make these decisions myself then have a government employee make them for me.
Naming a Guardian
A last will and testament is used to name a guardian for minor children. A guardian is the person who has physical custody of the children. If you don't name someone by doing your own estate planning, then upon your death the court will decide who this person will be.
Your named guardian can also be the person who manages funds for minors (this person is often called a conservator) or you could name two different people - a guardian who would raise them and a conservator who would manage funds. Ideally, the conservator is also an experienced investor or wise enough to manage assets on behalf of the best interests of your loved ones.
Transfer of Assets
Without a solid estate plan, estate assets can be held up in the courts and subject to delays and expenses. For some estates we are talking years and years. Family members may fight over what they think they should get.
If minors are involved (a person under 18 or 21 depending on your state) assets can not be transferred directly to them. Instead assets are placed under the duty of a court-appointed conservator until the minors reach the age of majority.
At the age of majority, all funds become immediately available to the beneficiary. Is this is not what you want to happen, then you must engage in estate planning so that you decide who the guardian/conservator will be and how and when the funds may be disbursed.
Don't Leave a Mess Behind
Trust me, no one jumps for joy when thinking about titling their accounts properly, setting up thoughtful beneficiary designations, drawing up a health care power of attorney, writing a will, or setting up a revocable living trust. Yet responsible people do these things. Be responsible. Get your estate planning done.