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While nobody wants to think about death or disability, establishing an estate plan is one of the most important steps you can take to protect yourself and your loved ones. Proper estate planning not only puts you in charge of your finances, it can also spare your loved ones the expense, delay, and frustration associated with managing your affairs if you were to pass away or become disabled.
Providing for Incapacity
If you become incapacitated, you won’t be able to manage your own financial affairs. Many are under the mistaken impression that their spouse or adult children can automatically take over for them in the event they become incapacitated. The truth is that in order for others to be able to manage your finances, they must petition a court to declare you legally incompetent. This process can be lengthy, costly and stressful. Even if the court appoints the person you would have chosen, that person will have to come back to the court every year and show how they are spending and investing each and every penny. If you want your family to be able to immediately take over for you, you must designate a person or persons you trust, using proper legal documents, so that they will have the authority to withdraw money from your accounts, pay bills, receive distributions from your IRAs, sell stocks, and refinance your home. A will does not take effect until you die, and a power of attorney may be insufficient.
In addition to planning for the financial aspect of your affairs during incapacity, you should establish a plan for your medical care. The law allows you to appoint someone you trust - for example, a family member or close friend to make decisions on your behalf about medical treatment options should you lose the ability to decide for yourself. You can do this by using a durable power of attorney for health care, in which you designate the person whom you would prefer to make such decisions. In addition to a power of attorney for heath care, you should also have a living will that informs others of your preferred medical treatments, such as the use of extraordinary measures in the event you become permanently unconscious or terminally ill.
Avoiding Probate
If you leave your estate to your loved ones using a will, everything you own will pass through probate. This process is expensive, time-consuming, and open to the public. The probate court is in control of the process until the estate has been settled and distributed. If you are married and have children, you will want to make certain that your surviving family has immediate access to cash so that they are able to pay for their living expenses while your estate is being settled. It is not unusual for the probate courts to freeze assets for weeks or even months while trying to determine the proper disposition of the estate. Your surviving spouse may be forced to apply to the probate court for needed cash to pay current living expenses. You can imagine how stressful this process can be. With proper planning, your assets can pass on to your loved ones without undergoing probate, in a manner that is quick, inexpensive and private.
Providing for Minor Children
It is important that your estate plan addresses issues regarding the upbringing of your children. If your children are young, you may want to consider implementing a plan that will allow your surviving spouse to devote more attention to your children, without the burden of work obligations. You may also want to provide for special counseling and resources for your spouse if you believe they lack the experience or ability to handle financial and legal matters. In addition, you should discuss with your attorney the possibility of you and your spouse dying simultaneously, or within a short duration of time. A contingency plan should provide for persons you’d like to manage your assets as well as the guardian you’d like to nominate for the upbringing of your children. The person, or trustee, in charge of finances need not be the same person as the guardian. In fact, in many situations, you may want to purposely designate different persons to maintain a system of checks and balances. If you do not create a contingency plan, the decision as to who will manage your finances and raise your children will be left to a court of law. Even if you are lucky enough to have the person or persons you would have preferred selected by the court, they may have undue burdens and restrictions placed on them, such as being required to provide annual accounting.
You should give careful thought to your choice of guardian, ensuring that he or she shares the values you want instilled in your children. You will also want to give consideration to the age and financial condition of a potential guardian. Some guardians may lack child-rearing skills you feel are necessary. Make sure that your plan does not create an additional financial burden for the guardian by providing the financial resources necessary to care fro your children.
Another issue to consider in this respect are whether you’d like your beneficiaries to receive your assets directly, or whether you’d prefer to have the assets placed in trust and distributed based upon a number of factors that you designate, such as age, need, and even behavior and education. All too often, children receive substantial assets before they are mature enough to handle them properly, with devastating results.
Planning for Death Taxes
Whether there will be any estate tax to pay depends on the size of your estate and how your estate plan works. Several states have their own separate estate and inheritance taxes that you need to be aware of. There are many well-established strategies that can reduce or eliminate death taxes, but you must start the planning process early in order to implement many of them.
Charitable Bequests – Planned Giving
Do you want to benefit a charitable organization or cause? Your estate plan can provide for such organizations in a variety of ways, either during your lifetime or at your death. Depending on how your giving plan is set up, it may also allow you to receive a stream of income for life, earn higher investment yield, or reduce your capital gains or estate taxes.
A well-crafted estate plan should provide for your loved ones in an effective and efficient manner by avoiding conservatorship during your lifetime, and probate, estate taxes, and unnecessary delays following your death. You should consult a qualified estate planning attorney to review your family and financial situation, explore your goals, and learn about the various options available to you. Once your estate plan is in place, you will have the peace of mind of knowing that you have provided for yourself and your family in case the worst should happen. |