Yes, you need an “Estate Plan”

What is an estate plan?

You say, “I don’t have an estate.  I just have a house the bank owns, a car the credit union owns, a bunch of furniture, oh, and a spouse and 3 kids, none of whom listen when I plan anything but maybe vacations!”

An estate plan isn’t just for rich people; it’s the overall design for what happens to your stuff  — and the people who depend upon you – when  you die or can no longer manage your own affairs.  Included are:

  • Beneficiary Designations
  • A Will;
  • A Power of Attorney;
  • A Living Will and Health Care Proxy (Durable Power of Attorney for Healthcare); and
  • Maybe a Trust

Retirement plans and life insurance pass to heirs outside the estate process.  Bank accounts titled with Right of Survivorship or Payable On Death also don’t need probate.  Make certain that your beneficiaries are up-to-date; avoid leaving assets to an ex-spouse, or a previously deceased person.  All professionals have stories of too much tax paid or less-than-ideal designations.  For most people, pension plans are their largest assets.  There are multiple ways to plan beneficiaries to optimize tax benefits, and a professional can help.

If you don’t leave a will, your state of residence will allocate your stuff  by law.  Maybe that’s fine, but maybe not.  If you have an unmarried partner, they will not receive anything.  Your spouse might have to split what you leave with your children; maybe some of it will go to distant relatives.  Clearly this is not a thing to leave to chance.  Even if you’re single, you have some cool stuff; you want to decide who gets to enjoy it when you can’t.

Your will also needs to designate guardian(s) for your minor children or other dependents.  If you don’t, local Children’s Services and the courts will.  If you had a bad experience in your family of origin, that’s what you’re consigning your children to.  Think this one through, and put it in writing.  Many of us have informal agreements with siblings or friends, but if it’s not in your will, there’s no certainty the courts will observe your wishes.  Also, if you are leaving substantial assets (like life insurance proceeds) for dependent support, you need to decide if the guardian(s) you’ve selected are the best managers of the money.  You may need a Trust.  Especially if the children are going out of state, a judge might otherwise impose ongoing financial reporting and/or permissions. You want to avoid court involvement; it’s a hassle and costly.  A standard trust for minor children can be included in your will.

A Power of Attorney authorizes a designated person to manage your financial affairs while you are alive.   Choose someone you can trust to pay your bills and do whatever’s needed when you can’t – up to and including selling your house and investments, and entering into contracts for your care.

Over the years there have been horror stories about people who haven’t made their wishes clear about end-of-life issues.  Many of us have lived with them in our own families.  As we live longer and are more dependent upon medical care at the end of life, we all need to think about these issues.  While intensely personal and involving our religious beliefs, we cannot afford to recognize that in fact, the doctors can “play God,” in letting us die or keeping us alive. There may be a time when we cannot control for ourselves what is done for and with us.  We need someone we trust and with whom we have discussed our feelings.  Don’t put it off.

Living Trusts to avoid probate and limit estate tax have been very popular for several decades.  Contrary to popular belief, trusts don’t eliminate tax, they’re just vehicles to structure financial relationships in ways that might reduce tax – if there is any to pay.  With the federal estate tax eliminated on those who die with less than $5million and most state taxes repealed, very few of us need to worry about the tax.  Probate may be an issue for you because you want privacy or because your state’s requirements are onerous.  Otherwise, you probably don’t need a trust.

There may be other reasons you need a trust – like a Special Needs dependent.  These are very specialized instruments which require an experienced attorney.

Please feel free to contact me anytime to discuss these issues.  If you don’t have an attorney, I have several excellent recommendations.

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