Estate Planning
Q: What is estate planning?
Estate planning is the process of organizing and arranging for the orderly management and disposition of your affairs and assets, during your life and after your death, to minimize legal and financial complications, fees and expenses, and taxes.
Q: Why is it important to establish an estate plan?
Regardless of your net worth, it is crucial to have an estate plan in place. Unfortunately, many families do not have an estate plan because they do not feel like they have a lot of assets or they mistakenly believe that their children can divide their assets by themselves. The truth is, however, if you do not have an estate plan in place the State’s intestacy laws will govern the distribution of your assets. This could result in people you did not intend getting your assets as well as higher estate taxes.
If you pass away without an estate plan, your estate could undergo probate, which is a public, court-supervised proceeding. Oftentimes probate is expensive and can tie up the assets of the deceased for a prolonged period. In addition, the failure to outline your intentions through proper estate planning can cause problems among your family members as each person maneuvers to be appointed with the authority to manage your affairs. Further, it is not unusual for family members to feud over money or a family heirloom. By having an estate plan in place, you can avoid these situations.
Q: What does my estate include?
Your estate is all the property that you own. It can include, but is not limited to, cash, clothes, jewelry, cars, houses, land, retirement, investment and savings accounts, life insurance policies you own, and any interest you may have in any business, etc.
Q: How do I name a guardian for my children?
If you have minor children you should designate a person in your Will to be their guardian in the event you pass away while they are still minors. You should name at least one alternate guardian in case the primary guardian cannot serve. Unless you name a guardian, a judge could appoint just about anyone who applies and who seems fit for the job. If there is more than one applicant, they may have to fight it out in court. You could be setting your family up for an expensive, vitriolic tug-of-war. Worse yet, no one may step forward. If there are no applicants, your children could be placed with a family member who is reluctant to have them, or they could wind up in foster care.
Q: What estate planning documents should I have?
Estate planning involves the will, trust beneficiary designations, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), living will, gift, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney. Specific final arrangements, such as whether to be buried or cremated, are also often part of the documents. More sophisticated estate plans may even cover deferring or decreasing estate taxes or winding up a business.
Wills: A common misconception is that wills are only for the rich. But, that's not true. A will is an essential part of any estate plan and is necessary to transfer your assets upon your death. A more sophisticated will is extremely useful to establish trusts for minors, spouses, in the case of divorce, and incapacitated persons so that assets do not pass directly to them. If you die without a will, state law controls the disposition of your property and settling an estate without a will is more troublesome, costly and takes a lot longer.
Trusts: A trust is an arrangement where you entrust property to one person or an organization. The person or trustee is taxed with managing the property on behalf of your beneficiary or beneficiaries. A revocable trust can be used to plan for both mental disability and death in one document. This type of trust will allow you to control your property while you're alive and well, designate the person of your choice to manage you and your finances if you become mentally disabled, and then list your instructions to your loved ones as to what to do with your assets after you die. Another benefit of using a revocable trust as part of your estate plan is that your family will be able to gain virtually immediate access to your assets after your death since property held in the trust will avoid court-supervised probate.
Financial Power of Attorney - The legal document necessary to delegate your financial decisions is called a Financial Power of Attorney. It will allow you to choose someone to manage your assets on your behalf if you're unable to do so for yourself. If the Power of Attorney is a "durable" one, then this means that the person you choose will have the immediate ability to take care of your property and will continue to be able to take care of it even if you're determined to be mentally incapacitated. If the Power of Attorney is a "springing" one, this means that the person you choose won't be able to manage your assets until after you've been determined to be mentally incompetent.
Medical Power of Attorney - A durable medical power of attorney, also known as a Health Care Proxy, is a document that allows you to appoint someone to make your health care decisions if you are unable to do so yourself. It is important to choose someone who is familiar with your healthcare wishes to make decisions for you, rather than the medical professionals.
Living Will - While a Health Care Proxy is the accepted document used to make health care decisions, the Living Will provides more detailed information about what procedures you want or do not want if you are incapacitated. In addition, in case your Health Care Proxy agent's decisions are challenged, the language in the Living Will can also be used as clear and convincing evidence of your wishes in court.
