What is estate planning?
Estate planning is the process of identifying how you would like your assets and your affairs maintained (including the designation of guardians for minor children) in the event of your incapacity or death. The issues addressed in a comprehensive estate plan are incapacity protection, probate avoidance and distribution planning. Depending upon the value of your estate, estate tax planning may also be incorporated into your arrangements.
If I am young, do I need estate planning?
One of the biggest mistakes people make is to put off preparing an estate plan until they believe they are old enough to need one. The reality is that anything can happen to anyone at any time. If you wait to start thinking about estate planning until some event in your life requires you to do so, you may be too late. You should protect your spouse, your children, your family, your assets and yourself now while you are healthy and have the ability to do so. Yes, even if you are young, you should prepare an estate plan.
If I am not wealthy, do I need estate planning?
Many people make the mistake of assuming that estate planning is only for the wealthy. Much of the protection a comprehensive estate plan provides addresses issues apart from the value of your assets. In other words, estate planning involves much more than just estate tax planning. Naming guardians for minor children, providing protection in the event of incapacity, avoiding the hassle and costs associated with court-supervised probate and properly passing your assets to the right beneficiaries at the right time are examples of estate planning issues facing every client, regardless of age and net worth. Yes, even if you do not consider yourself to be wealthy, you should prepare an estate plan.
What is incapacity protection?
Incapacity protection is planning that allows you to control the continued management of your medical, financial and administrative affairs in the event of your incapacity. If you become incapacitated and do not have protection, the court will appoint a guardian to manage your affairs. Incapacity protection, typically achieved through an Advance Medical Directive and a Durable General Power of Attorney, allows you to decide who will make decisions for you and avoids the court's involvement.
What is probate and should I try to avoid it?
Put very simply and generally, probate is the court-supervised administration and distribution of the assets you own in your own name (with no designated beneficiary or joint account holder with right of survivorship) upon your death. This process can be time consuming and expensive, depending on the types of assets you have and their values. The question you should ask is whether or not there is a benefit to having the court supervise the administration and distribution of your assets upon your death. Generally, unless there will be significant fighting among the beneficiaries or you do not have trust in the individuals who will otherwise be responsible for administering and distributing your assets, the court's process adds little value and therefore, the costs are unnecessary. There are easy ways to avoid this process and its hassle and expense.
What should my plan address if I have minor children?
If you have minor children, your estate plan should designate guardians for those children in the event they are still minors upon your incapacity or death and should control the distribution of assets to your children them at the right time and for the right reasons in the event of your death. You may choose, for example, to name a trustee to manage the assets for the benefit of children until they reach a certain age (e.g., 21, 25, 40, etc.). Through the appointment of a guardian and proper distribution planning, a comprehensive plan can ensure that your minor children receive the proper care and that their inheritance is protected from those who could harm them, potentially even from themselves.
How can I leave money to a child who may be unable to manage it properly?
If distributing assets outright to a beneficiary causes you concern because the beneficiary may lack sufficient maturity to properly manage such assets, your estate plan can respond to those concerns. One option is to direct the assets to be held pursuant to the Uniform Transfers to Minors Act until the beneficiary attains the age of either eighteen (18) or twenty-one (21). Another option is to direct the assets to a trust, to be managed by a trustee you select, authorizing the trustee to distribute assets to the beneficiary or for his or her benefit until the beneficiary reaches a certain age, at which point he or she will receive a portion or all of the assets. This latter technique, referred to as a “continuing trust” allows you to send the assets to the right beneficiaries at the right time. Both of these options, as well as other creative options your estate planning professional can help you explore, will help you protect the beneficiary from his or her own indiscretion.
How do I know if I need estate tax planning?
If you add up the value of all of your assets, including real estate, cash accounts, taxable investment accounts, retirement accounts, life insurance death benefits, cars and other tangibles (furniture, jewelry and clothing), and you arrive at a number that exceeds one estate tax exemption amount (either state or federal), even if you are married, (the 2018 federal exemption amount is currently $11,200,000), you have estate tax exposure and should consult a qualified estate planning professional to consider various estate tax planning techniques.
Will my life insurance proceeds be included in my estate for estate tax purposes?
The short answer is yes. You may have heard that life insurance is tax free. The reality is that, while life insurance proceeds are not taxable income to the beneficiary and are therefore income tax free, the value of the death benefit is generally included in the decedent's estate for estate tax purposes. If you are the owner of a policy insuring your life or the life of another, and you have the authority to change the beneficiary and otherwise control the policy, the death benefit (or in certain cases, the cash value) will most likely be included in your estate and will contribute to a potential estate tax bill. With proper planning you can eliminate the inclusion of the life insurance proceeds from your estate and the resulting estate tax associated with that inclusion. Please see a qualified estate planning professional for further information.
How can my estate plan take into consideration the fact that I and/or my spouse have children from a prior marriage?
If either you have or your spouse has children from a prior marriage, it is important that you feel confident that your estate plan will provide for those children pursuant to your wishes and that nothing will happen subsequent to your death that will alter your plan. Special planning measures may be put in place to provide you with such assurances. Your estate planning professional should be equipped to assist you with identifying issues that arise when there are children from a prior marriage and help you plan for those issues.
What are my options for naming trustees, executors and agents?
Normally, when naming a Trustee (to manage your trust), Executor (to carry out the terms of your Will) and Agent (to serve in your Durable General Power of Attorney), your best choice(s) will come from family members and close friends. Assuming you trust such individual(s) to manage your affairs when necessary and to administer and distribute your assets, they are able to provide a personal touch no other individual or institution can provide. However, if you do not have a family member or close friend you can trust in such a capacity, you can name a professional advisor or trust company to serve as Trustee or Executor. You should consult your estate planning professional for advice as to your options with respect to naming individuals or institutions other than family members and close friends.
