Estate planning can be a difficult topic for many families to address, but it is a necessary one. Without proper preparation and documentation, assets such as houses, retirement plans, and savings accounts can end up in limbo for years, sometimes requiring expensive legal assistance to straighten matters out.
Many people mistakenly believe that estate planning is only necessary for wealthy or older people. In reality, a basic estate plan is essential for everyone, regardless of income, net worth, or age, because we all want to minimize confusion, unnecessary costs, and stress for loved ones after a death or in the event of incapacity.
What is Estate Planning
This is simply the process of arranging for an orderly transfer of your assets to the people you want to receive them, it involves identifying who you want to give your assets to and when, either in your life time or at death; but sometimes done after death).
Most often than not, we look at Updated beneficiary designation forms as one Estate planning we all need where it forms on life insurance policies, 401(k) accounts and other assets will generally override any conflicting provisions within a will or trust. It’s essential to make sure all forms are checked and updated regularly, ideally on an annual basis.
Importance of Estate Planning.
An Estate Plan Protects Young Children
Nobody thinks of dying young, but if you’re the parent of small children, you need to prepare for the unthinkable. This is where the will portion of an estate plan comes in; to ensure that your children are cared for in a manner of which you approve, you’ll want to name their guardians in the event that both parents die before the kids turn 18. Without a will that names these guardians, the courts will step in to decide who will raise your children.
An Estate Plan Eliminates Family Messes
We have all heard the horror stories; someone with money dies and the war between family members begins. One sibling may think they deserve more than another, or one sibling may think they should be in charge of the finances even though they’re notorious for racking up debt. Such squabbling can get ugly and end up in court, with family members pitted against one another.
An Estate Plan Spares Heirs a Big Tax Bite
Estate planning is all about protecting your loved ones, which means in part giving them protection from the Internal Revenue Service (IRS). Essential to estate planning is transferring assets to heirs with an eye toward creating the smallest possible tax burden for them. Even just a bit of estate planning can enable couples to reduce much or even all of their federal and state estate taxes and state inheritance taxes.
Three Estate Planning Item Everyone Needs
1. An up-to-date will or trust
Wills are easy to create, but they require probate for the distribution of assets. Probate is a legal process that involves
Validating a deceased person’s will
Identifying, inventorying, and appraising the deceased person’s property
Paying debts and taxes
Ultimately distributing the remaining property as the will directs.
The probate process often requires a lot of technical paperwork and court appearances, and the resulting legal and court fees are paid from estate property reducing the amount that is passed on to heirs.
Trusts usually avoid probate, which helps beneficiaries gain access to assets quicker as well as save time and court fees. Depending on how it is structured, a trust may also reduce estate taxes owed and can protect an estate from heirs’ creditors.
2. A durable power of attorney
A power of attorney is a written authorization that allows someone else to make financial and legal decisions for a person if that person should become hospitalized, disabled, or otherwise incapacitated. Not all powers of attorney are created equal. Some are put in place for short periods of time only, while a person is vacationing overseas but dealing with legal matters at home. Powers of attorney for property should only be given to trusted individuals, ideally those who are good with financial and legal matters. Medical powers of attorney, giving someone the authority to make healthcare decisions on your behalf, can be separate and given to someone else, if desired.
3. Updated beneficiary designation forms
Beneficiary designation forms on life insurance policies, retirement accounts, and other assets will generally override any conflicting provisions within a will or trust. It is essential to make sure all forms are checked and updated regularly, ideally on an annual basis. An estate planning professional can help you create or update these basic items as well as provide suggestions for additional steps, if needed.
Letter of Intent
A letter of intent is simply a document left to your executor or a beneficiary. The purpose is to define what you want to be done with a particular asset after your death or incapacitation. Some letters of intent also provide funeral details or other special requests.
Healthcare Power of Attorney
A healthcare power of attorney (HCPA) designates another individual (typically a spouse or family member) to make important healthcare decisions on your behalf in the event of incapacity. If you are considering executing such a document, you should pick someone you trust, who shares your views, and who would likely recommend a course of action you would agree with. After all, this person could literally have your life in their hands
If you would like to learn more about the documents you need in estate planning, any one of our estate planning attorneys would be happy to assist you.