Estate planning is a process that involves making advanced plans for end-of-life issues and for property and assets when one passes away. Any person may become sick or hurt, creating a situation where they need nursing care or where tough choices must be made about medical treatment. Every person will eventually pass away, which cause undue problems if no plans could have been made regarding assets and property. Estate planning utilizes legal and financial tools to address the issues that arise in case of illness, incapacity, and death. The planning process is different for everyone, because you may have your own unique goals, like supporting a charity or paying for your child’s college education. A good attorney will listen carefully to you, ask questions that help you to shape the estate planning process, and assist you in using the right tools.
An estate plan may involve the following steps:
• Creating a last will and testament.
• Creating trusts to protect assets during your lifetime and from loss by irresponsible heirs after your death.
• Creating advanced directives for healthcare, including a do not resuscitate order and/or a living will.
• Creating a power of attorney to give someone authority to act for you if you become incapacitated.
When Should I Make an Estate Plan?
It is important to make an estate plan as soon as you have assets, have anyone depending upon you, or have become an adult with your own opinions about your medical care. Many people mistakenly believe estate planning isn’t something they need to worry about yet, but this is simply not true.
It is wise to create an estate plan if any of the following are true:
• You have a spouse and/or child you want to be provided for if something happens to you.
• You have a child or children and you want to name a guardian for them, should you pass away.
• You want to plan ahead for your medical care, just in case you become incapacitated.
• You have strong opinions about your end-of-life care.
• You want to be sure your wishes are carried out to the letter regarding your assets/property.
• You want to protect your assets from estate taxes, lawsuits, and creditors.
• You want to qualify for Medicaid in the future, without “spending down” your assets.
Life is uncertain. You don’t want your assets losing value because of mismanagement or your family fighting over your property if something unexpected happens to you. Your estate plan can address issues like reducing or avoiding estate taxes, dealing with irresponsible heirs, and making sure you have a trusted person who will take care of your kids in case you pass away. Whatever your goals, estate planning can help you achieve them.
Simple Steps to an Estate Plan
Make a will.
In a will, you state who you want to inherit your property and name a guardian to care for your young children should something happen to you and the other parent.
Consider a trust.
If you hold your property in a living trust, your survivors won’t have to go through probate court, a time-consuming and expensive process.
Make health care directives.
Writing out your wishes for health care can protect you if you become unable to make medical decisions for yourself. Health care directives include a health care declaration (“living will”) and a power of attorney for health care, which gives someone you choose the power to make decisions if you can’t. (In some states, these documents are combined into one, called an advance health care directive.)
Make a financial power of attorney.
With a durable power of attorney for finances, you can give a trusted person authority to handle your finances and property if you become incapacitated and unable to handle your own affairs. The person you name to handle your finances is called your agent or attorney-in-fact (but doesn’t have to be an attorney).
Protect your children’s property.
You should name an adult to manage any money and property your minor children may inherit from you. This can be the same person as the personal guardian you name in your will.
File beneficiary forms
Naming a beneficiary for bank accounts and retirement plans makes the account automatically “payable on death” to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.
Consider life insurance
If you have young children or own a house, or you may owe significant debts or estate tax when you die, life insurance may be a good idea.
Understand estate taxes
Most estates — more than 99.7% — won’t owe federal estate taxes. For deaths in 2017, the federal government will impose estate tax at your death only if your taxable estate is worth more than $5.49 million. (This exemption amount rises each year to adjust for inflation.) Also, married couples can transfer up to twice the exempt amount tax-free, and all assets left to a spouse (as long as the spouse is a U.S. citizen) or tax-exempt charity is exempt from the tax.
Cover funeral expenses.
Rather than a funeral prepayment plan, which may be unreliable, you can set up a payable-on-death account at your bank and deposit funds into it to pay for your funeral and related expenses.
Make final arrangements.
Make your end-of-life wishes known regarding organ and body donation and disposition of your body — burial or cremation.
Protect your business
If you’re the sole owner of a business, you should have a succession plan. If you own a business with others, you should have a buyout agreement.
Store your documents.
Your attorney-in-fact and/or your executor (the person you choose in your will to administer your property after you die) may need access to the following documents:
• insurance policies
• real estate deeds
• certificates for stocks, bonds, annuities
• information on bank accounts, mutual funds, and safe deposit boxes
• information on retirement plans, 401(k) accounts, or IRAs
• information on debts: credit cards, mortgages and loans, utilities, and unpaid taxes
• information on funeral prepayment plans, and any final arrangements instructions you have made.
The Estate Planning Process
It is natural for many people to put off planning their estates. After all, no one wants to anticipate his or her own death. In addition, many people may believe that only the wealthy require estate planning or that all that is involved is tax planning, which can be done “later.” They may well be wrong on both counts. Your level of wealth and the ultimate tax consequences of your estate become secondary to the planning and care of your family and other heirs. A well-structured estate plan is invaluable. Through it, you can control the distribution of your assets and possessions, as well as name guardians for your children or plan care for other dependents. While the estate planning process can raise some difficult emotional and personal issues, your heirs will be glad you did it, and you will know that your wishes are assured.
How To Begin?
Your first step should be to assemble a competent, professional estate planning team. Your attorney, financial service professional, insurance agent, bank trust officer, and/or accountant are all possible members of your team, depending on the size and complexity of your estate. They can help you complete an analysis of your current estate by looking at your financial position as of today and helping you analyze your family’s needs for the future. Does a family member have special needs or require medical attention? How much will an education cost when your children reach college age? How will your family’s overall cost-of-living requirements change? How will estate taxes affect your assets as they are currently held? The answers to these questions can help you develop an estate plan that will adequately provide for your family’s needs.
What Information Should Be Gathered?
A thorough estate analysis requires gathering any and all materials involving current or future income, property ownership, insurance, and legal arrangements already in place. This includes records of the following:
• Current income from employment and all investments
• Any expected deferred compensation
• All retirement benefits, from Social Security (including survivors’ benefits), IRAs, pensions, and profit-sharing plans
• Investment documents, certificates, passbooks, etc.
• Deeds to primary and vacation residences
• Personal property
• Life insurance policies of which you are the owner, the insured, or the beneficiary
• Trust agreements, if any
• Your will, if you have one
Current and expected debts and obligations, including mortgage and loan balances, real estate liens, taxes payable, consumer debts, and estimates of funeral costs and estate settlement expenses.
Once assembled, a complete analysis can begin, giving you the basis for a solid estate plan.
Steps To Estate Preservation
If you begin planning in a timely fashion, there are clear, legitimate methods that allow you to take steps to preserve your estate and minimize estate taxation while satisfying both the Internal Revenue Service (IRS) and the courts. You will also save your heirs needless effort and expense. Consider the following steps:
• Plan a Gifting Program. Further tax shielding is gained through the use of the annual $12,000 gift exclusion, which is indexed annually for inflation. This allows gifting (in the year 2007) of up to $12,000 each, to any number of donees annually without payment of gift tax. (When a spouse is involved in the gifting program, the annual exclusion will increase up to $24,000 per donee, indexed for inflation.) Provision must be made for the immediate use of the gift by the donee; gifts of future interest will not qualify. Professional assistance and careful structuring of your gifting program are, therefore, essential.
• Draft a Will. A will is a formal, legal document instructing your survivors in the settlement of your estate. It is crucial to the success of an estate plan that your will be properly written by a qualified, experienced legal professional and witnessed simultaneously by two parties.
• Establish Trusts. Utilizing trusts can be an excellent method of accomplishing long-term estate planning goals. Trusts, while seemingly complex, are simply very powerful tools designed to help individuals handle a variety of family and tax-related problems.
• Plan Your Charitable Bequests. The value of all property transferred for “charitable” or “public” purposes is deductible, with certain limitations, when determining the valuation of an estate for tax purposes.
• Utilize Life Insurance to Its Fullest Advantage. Life insurance can fulfill two important functions in your estate planning. First and foremost, it can provide for the immediate cash needs of your spouse or other beneficiaries. Second, and of equal importance, the use of an irrevocable life insurance trust (ILIT) can prevent inclusion of your life insurance proceeds in your estate and help your executor pay your estate tax bill without having to sell estate assets.
• Title Assets Properly. The simplest and least expensive estate planning technique for married couples is to take title to assets as “joint tenants.” This will exclude assets from probate and may eventually save legal costs.
Reasons You Need an Estate Plan
While there are a variety of reasons why people decide to meet with an estate planning attorney and create an estate plan, here are the most valuable reasons.
Avoid Probate: A probate is the process of validating a deceased person’s will and placing a value on their assets, paying their final bills and taxes, and distributing the rest to their beneficiaries. Avoiding probate is by far the most common reason why people seek out the advice of an estate planning attorney. While many have never dealt with probate, they still know one thing: they want to avoid it at all costs. This stems from probate horror stories covered by the media or told by neighbors, friends, or business associates. For the vast majority of people, avoiding probate is a very good reason for creating an estate plan and can be easily achieved.
Reduce Estate Taxes: The significant loss of one’s estate to the payment of state and federal estate taxes or state inheritance taxes is a great motivator for many people to put an estate plan together. Through the most basic planning, married couples can reduce or even possibly eliminate estate taxes altogether by setting up AB Trusts or ABC Trusts as part of their wills or revocable living trusts. Also, a variety of advanced estate planning techniques can be used by both married couples and individuals to make the estate or inheritance tax bill less burdensome or completely go away.
Avoid a Mess: Many clients seek the advice of an estate planning attorney after personally experiencing or seeing a close friend or business associate experience a significant waste of time and money due to a loved one’s failure to make an estate plan. Choosing someone to be in charge if you become mentally incapacitated or die—and deciding who will get what, when they will get it, and how they will get it—will go a long way towards avoiding family fights and costly probate court proceedings.
Protect Beneficiaries: There are generally two main reasons why people put together an estate plan to protect their beneficiaries: To protect minor beneficiaries, or to protect adult beneficiaries from bad decisions, outside influences, creditor problems, and divorcing spouses. If the beneficiary is a minor, all 50 states have laws that require a guardian or conservator to be appointed to oversee the minor’s needs and finances until the minor becomes a legal adult—at age 18 or 21, depending on the laws of the state where the minor lives. You can prevent family discord and costly legal expenses by taking the time to designate a guardian and trustee for your minor beneficiaries. Or, if the beneficiary is already an adult that’s bad at managing money or has an overbearing spouse or partner who you fear will squander the beneficiary’s inheritance or take it in a divorce, you can create an estate plan that will protect the beneficiary.
Protect Assets: Asset protection planning has become a significant reason why many people, including those who already have an estate plan, are meeting with their estate planning attorney. Once you know or suspect that a lawsuit is on the horizon, it’s too late to put a plan in place to protect your assets. Instead, you need to start with a sound financial plan and couple that with a comprehensive estate plan that will, in turn, protect your assets for the benefit of both you during your lifetime and your beneficiaries after your death.
Essential Estate Planning Documents
If your current family and financial situations do not warrant the need for a revocable living trust, then your foundational estate plan will include the following four important legal documents:
Last Will and Testament
Advance Medical Directive
Financial Power of Attorney
If your current family and/or financial situations warrant the need for a more sophisticated estate plan, then your foundational estate plan will include the following important legal documents:
Pour Over Will
Revocable Living Trust
Advance Medical Directive
Financial Power of Attorney
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
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