What Is Estate Planning and Why Is It Important?

by User Not Found | Feb 16, 2022
What is estate planning and why is it important?

Successful insurance producers, financial planners (including CFP® professionals), and other financial professionals understand the importance of estate planning. Estate planning is important both for individuals and for businesses, especially small or medium-sized businesses (SMBs).

What is an Estate Plan?

Put simply, an estate plan is a set of instructions that clearly spells out how property and assets should be managed during life and then how it should be distributed upon the estate owner’s death.

An estate plan should include:

  1. During life, arranging assets to help estate owners in a tax-efficient manner to meet their financial objectives
  2. At death, how assets will be distributed and survivors’ needs be provided for

Who Needs Estate Planning?

Estate planning isn’t just for the super-rich. Avoiding large estate tax bills is only one item on a long list of benefits. Estate planning is important for anyone who needs to provide for loved ones or wants the opportunity to decide how their assets will be distributed after death.

In other words: estate planning is for everyone!

Why is Estate Planning Important?

Having an estate plan is important, especially for older individuals and small business owners.

Benefits of an Estate Plan

Having an estate plan has many benefits, both for individuals and SMBs. A carefully implemented estate plan can:

  • Create and conserve assets during life
  • Minimize estate taxes and estate settlement costs
  • Ensure cash is available to pay unavoidable taxes and costs
  • Provide for an orderly distribution of assets that meets the estate owner’s objectives and intentions
  • Protect a business and ensure its successful transfer
  • Provide peace of mind and family harmony

In addition to the obvious benefits, an estate plan can:

  • Avoid conflict. How assets are passed to family members or other heirs can be complex. Clear documentation of an estate owner’s decisions concerning the distribution of assets can help avoid conflicts by minimizing the sting of unfulfilled expectations while ensuring that plans steer clear of unintended consequences.
  • Expedite settlement. By providing executors and administrators with a blueprint of wishes, an estate owner can considerably reduce the time required for estate settlement.
  • Shrink expenses. Written directives ensure efficient estate transfer, which can minimize expenses, conserve estate assets, and provide for an orderly distribution of the estate.
  • Realize philanthropic goals. Comprehensive estate planning allows for the fulfillment of charitable intentions if estate owners choose to distribute assets to personally meaningful organizations or institutions.

Estate Planning for Small Businesses

Estate and succession planning is important for everyone, but it is especially important for small business owners. When insurance and financial professionals understand why and how small business owners create estate plans, it helps them better understand

According to the U.S. Small Business Administration, there were 32.5 million small businesses in the United States. These small businesses make up 99.9% of all U.S. businesses and employ almost half (46.8%) of all U.S. employees.

Estate and succession plans provide security and peace of mind for family members. Life insurance, as a key piece of the puzzle, ensures the success of individual plans by:

  • Providing liquidity
  • Equalizing inheritances
  • Funding trusts and other asset management vehicles
  • Minimizing estate shrinkage
  • Transferring a business interest
  • Creating wealth and income for survivors

Of course, business owners have unique planning needs. Most are not well diversified. In many estates, the business is not only the largest asset but also the family’s primary source of income. That is why estate planning and business succession planning are inseparable. Goals and decisions made on behalf of the business inevitably affect the family.

The good news is life insurance can help by providing critical protection for the business and essential liquidity to surviving heirs.

Learn More About Estate Planning

Insurance producers, CFP® professionals, and other financial professionals can learn more about estate planning from WebCE’s online courses.

To learn more about estate planning and small businesses, WebCE is excited to announce a new course designed for insurance professionals and financial planners and advisors:

This course offers a full overview of estate and succession planning for small business owners. It discusses planning techniques that estate owners can use to prepare for the passing of property — including a business — at the owner’s death.

To order this course and more, click the link above or visit the WebCE Catalog.

WebCE Course Catalog