The significant reason for estate planning
Everyone needs an estate plan, not just the super-wealthy. Estate planning is planning for the orderly distribution of your property to your heirs. But it encompasses much more.
Estate planning has five major purposes, one or more of which will surely apply to you. With a good estate plan you can:
- Designate how your assets are to be distributed among beneficiaries after you die.
- Avoid or minimize the delays and expense of probate.
- Appoint a guardian for your minor children and a person to manage the children’s assets.
- Provide for the possibility that you will become incapacitated and unable to manage your finances or make medical and other decisions for yourself.
- Eliminate or minimize estate taxes.
Distribution of your assets on death:
If you die without an estate plan, the state will provide a plan for you. Every state has a law that specifies who gets your property if you die without a will or other documents for passing your property. The law is a “one size fits all” plan that attempts to predict how most people would like their property distributed. Typically, your property would go partly to your spouse with the rest to your children in equal shares. If you don’t have a spouse or children, your property would go to other relatives, such as parents or siblings.
This plan may not be suitable in many instances. For example, you may want to:
- Leave unequal shares to your children because they have different needs or you have already provided more help to one during your life.
- Ensure that property left to a spouse will go to your children from a different marriage on the spouse’s death, rather than to the spouse’s children or relatives.
- Disinherit a child.
- Leave your estate to a life partner to whom you are not married.
- Leave a gift to a grandchild, a more distant relative, or friend.
- Leave a contribution to charity.
Avoiding Probate:
Probate, the court-supervised process of distributing your estate, can be time-consuming and expensive. You can minimize the assets that need to pass through probate or eliminate probate altogether by using certain devices such as:
- Revocable living trusts.
- Joint tenancies with rights of survivorship.
- Transfer on death deeds or pay on death accounts.
- Beneficiary designations for life insurance and retirement plans.
Providing for Minor Children:
If you have minor children you will want to name a guardian to care for them in the event of your death. Although a court will need to appoint the guardian, most courts will follow your wishes in the absence of a compelling reason not to. Minors can’t be given property outright. You will need to designate someone to manage your children’s property until they are adults and able to manage it themselves.
Preparing for Your Incapacity:
In your estate planning documents, you can designate someone to manage your financial affairs should you become unable to do so. You can also specify how your incapacity is to be established. With the proper documents in place, you will save your family the expense and stress of having to go to court to get a guardianship.
You can designate a person to make medical decisions for you when you no longer can. And you can provide written guidelines for that person as to what type of end of life treatment you want.
Reducing Estate Taxes:
Most people will not owe federal estate taxes. In fact, more than 99.9 percent of all estates are not subject to the federal estate tax. But if you expect your estate to be worth more than around $11 million, you will want to meet with an estate planning attorney to discuss strategies for minimizing your estate taxes. These may involve making gifts while you are alive and establishing various trusts.
If you have questions about estate planning or are ready to begin work on your estate plan, please call me. I will guide you through the process of developing your estate plan and help you take advantage of the best estate planning tools for your situation.
