Estate Planning is the process of arranging for the orderly distribution of assets (property and investments) upon a person’s death. And as the old saying tells us, “You can’t take it with you”; even so, we have to ask ourselves, “So what do we want to do with it?” The process can be very specific and elaborate depending on the size of the estate, the assets of the estate, or the desires of the individual. No matter the size of the estate, every person should have a plan for the transfer of their assets. If you should die without a will (intestate) the state in which you live has intestate succession laws that will make the decisions for you. The court will decide who gets your assets and who will care for your minor children. These decisions are made based on current law.
The primary reasons for estate planning are to:
1. Ensure that your assets reach YOUR intended heirs. This is especially important if you have plans to give a portion of your estate to charities, a church, an alma mater, or children from a prior marriage. Your wishes may be ignored if not properly documented.
2. Determine when your heirs receive the estate. Do you have a preference as to when they receive the assets? It may be beneficial to both the heirs and the estate to distribute assets over time. For example, do the heirs show financial stewardship to warrant the lump-sum value or should they receive periodic distributions?
3. Minimize taxes. For example: income, gift, estate, and generation-skipping transfer taxes. There are many strategies to help families reduce a potential tax liability.
4. Reduce delays and expenses of probate. Having a well-defined will takes the guesswork out of the legal process and can curtail certain expenses.
5. Establish custodial arrangements for minor children or a special needs child. This is vitally important as you will want to choose someone who shares your values.
6. Ease the responsibility of estate administration on your family. Family members are already dealing with the emotional trauma of death. Having a well documented transfer plan will help ease their stress.
7. Determine if assets are sufficient to provide income for the surviving family. Life insurance policies cannot replace a lost spouse, but they can replace the lost income of that spouse. This could be critical if there are children to support.
The bottom-line: if you own property or have minor children, you need an estate plan.
Next quarter we will discuss the following items in Estate Planning 101 – Part 2:
Wills and Trusts – Wills and trusts are written, legal documents that identify how assets will be transferred. There are many types of wills and trusts to fit the needs of each individual situation.
Powers of Attorney and Medical Directives – These are documents that give another person authority to make decisions on your behalf. They can be general or very specific.
■ Written By: Stephen Palm